Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
PSU stocks: Fundamentals unchanged - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 27, 2004

    PSU stocks: Fundamentals unchanged

    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

    How to Ride Alongside India's Best Fund Managers (The 5 Minute Wrapup)

    Jun 10, 2017

    Forty Indian investing gurus, as worthy of imitation as the legendary Peter Lynch, can help you get rich in the stock market.

    Why Hasn't Warren Buffett Rung the Bell Yet? (The 5 Minute Wrapup)

    Aug 22, 2017

    It's surprising Warren Buffett hasn't warned investors about the expensive stock market? Let us know why.

    Think Twice Before You Keep Money In A Savings Bank Account (Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    A Darkness Is Spreading Across the US (Vivek Kaul's Diary)

    Aug 22, 2017

    Today, we are attacked by one preposterous thing after another, each of them even more absurd than the last.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working (Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 22, 2017 (Close)