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PSU stocks rally driven by retail investors
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There has been no meaningful Institutional crowding in PSU names in this cycle, barring few names. PSU rally seems to have been driven by retail investors, foreign brokerage, Bernstein said in a report.
Foreign Institutional Investors (FIIs) have always preferred private companies (20.5 per cent now vs. 10 year average of 21.5 per cent) over PSUs (9.3 per cent now vs. 10 year average of 9.8 per cent) and there hasn’t been any shift in this preference in current cycle.
Domestic Institutional investors tend to own more PSUs compared to FIIs, however, they have been reducing their ownership in PSU names (13.7 per cent now vs. 10 year average of 14.6 per cent) and increasing in non-PSU (15.7 per cent now vs. 10 year average of 12.8 per cent) over the last year, the report said.
FII crowding can be seen in NMDC, Bharat Electronics, HAL, BOB, Canara Bank, Indian Bank and Union Bank.
DII crowding is in Gujarat Gas, National Aluminium Co., Container Corp, Indian Bank, Bank of India and HUDCO.
India PSUs (Public Sector Undertakings) have been on a roll, with BSE PSU Index up 21 per cent YTD and +279 per cent since October 2020 when it started outperforming the broader market after almost a decade of underperformance, the report said.
“We find only limited opportunities within PSU portfolio -- the ones which are high momentum or dividend yielding stocks with reasonable valuations,” the report said.
Fundamentally, the PSU pack looks better vs. history. However, consensus looks too bullish. There has been a reasonable improvement in ROEs (13.5 per cent vs. 11 per cent average) and margins (7.5 per cent vs. 6 per cent average) for the PSU Index. While many PSU names would stackup well on dividends vs. non-PSUs, the overall index dividend yield has been declining and now sits at 2.8 per cent, the report said.
Earnings has been a big driver for PSU names so far, however analysts have never been so bullish on earnings outlook (driven by reform push) even though actual earnings have been flattish for a while. This could be a key risk, it added.
