PSU stocks: Fundamentals unchanged - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

PSU stocks: Fundamentals unchanged

May 27, 2004

PSU stocks were undoubtedly the biggest sufferers of the unexpected political change of the recent elections. The reason being that the previous (NDA) government had big plans regarding disinvestment of these PSUs, and as a result these stocks witnessed a huge improvement in their valuations in last one-year. But since the new government has categorically refused to divest the profit making PSU, these stocks went into a correction mode, taking along with it the markets as well. As can be seen from the graph given below, Rs 100 invested in BSE PSU index one month back would have turned to Rs 75 (negative returns of 25%).

In this backdrop, through our weekly poll, we asked our audience's view on the PSU stocks now. As expected, the maximum 36% of the voters have negative views towards the public sector units. On the other hand, while 34% have remained neutral, 29% are still bullish on the PSU stocks.

More than 50% of the total PSU capitalisation comes from energy sector. While higher crude also remains a cause of worry, because the new government has not indicated the incremental costs on to the customers, it will have a negative impact on the oil-marketing majors like HPCL, BPCL and IBP. On the contrary, pure refining companies like Chennai Petroleum, Bongaigaon Refinery and Kochi Refinery will rather have higher refining margins due to increased crude prices.

As far as the neutral view of some of our audience is concerned, it seems to emanate from the fact that PSUs in the engineering, steel and other sectors were anyway not on the divestment list of the previous government. So, there should not be any change in investors' sentiment for these companies. Also the new power minister has indicated towards continuing reforms in the power sector. As such, companies in power and engineering sector are unlikely to have any fundamental impact. While some of the PSUs from these sectors have witnessed more than 25% correction, the valuations at the current price for most of these companies are looking attractive.

We would like to conclude by saying that whether disinvestment happens or not, oil companies are long-term growth stories and have future plans like venturing into exploration and natural gas, capacity expansion of refineries and increasing the distribution reach. These initiatives, we believe, are unlikely to suffer whether disinvestment happens or not. In fact, the new government has promised greater managerial autonomy to these PSU companies. To that extent, we believe that the stock market has over-reacted to the disinvestment factor.

After last week's fallout, valuations also look attractive. Having said that government intervention is a cause of concern and to that extent, the risk profile of the stock and the sector is higher, investors have to ask whether there is anything 'new' in the same!

Equitymaster requests your view! Post a comment on "PSU stocks: Fundamentals unchanged". Click here!


More Views on News

BSE Sensex Surges 510 Points; ONGC Among Top Gainers (Market Updates)

Sep 28, 2020 | Updated on Sep 28, 2020

The BSE Sensex Surged 510 Points; ONGC Among Top Gainers. Find the latest update, special reports and news on all time high gainers of BSE Sensex at

Why the Market May Rally for a Few Days (Fast Profits Daily)

Sep 28, 2020

Why I think the market can rise for the next few days.

My Top Pick for 2021 is Not a Stock. It is Something Much More Powerful (Profit Hunter)

Sep 28, 2020

My top pick for 2021 is something that has helped me and my subscribers beat the stock market by a factor of 2:1.

Your Queries on the 8-Year Cycle Answered (Fast Profits Daily)

Sep 25, 2020

You've sent in your queries on my videos on the 8-year greed and fear cycle in the market. I'll answer them in this video.

It's When You Sell that Counts (Profit Hunter)

Sep 25, 2020

How I alerted readers to the impending crash last week.

More Views on News

Most Popular

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

My Top Stock to Buy in this Market Selloff (Profit Hunter)

Sep 22, 2020

The recent correction offers a great opportunity to buy this high conviction smallcap stock.

Can the Nifty Fall to 10,200? (Fast Profits Daily)

Sep 24, 2020

The Nifty has reached an important support level today. If it breaks then we could see further downside.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...


Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms


Sep 28, 2020 (Close)