PSU Funds Set To Woo Investors

At a time when the equity market is trading at its lifetime high with stretched valuation, there are very few pockets that give margin on safety and PSE stocks are one of them. The article highlights the reasons why PSU funds are becoming attractive

In a series of bizarre events in the last week of October 2021, we saw huge volatility in the shares of IRCTC. First the shares of IRCTC crashed over 20 per cent on October 29 only to recover most of its losses during the course of the day. The steep fall in the share price of IRCTC was due to the statement issued by the Ministry of Railways October 28 saying that they would take a 50 per cent share of the convenience fee earned by the IRCTC, which remains one of the key sources of revenue for the IRCTC. This was withdrawn within 19 hours after the announcement, which helped the shares to recoup losses.

What this entire event signifies is that the government is now more sensitive towards minority shareholders. It also sends a positive signal to the investor community, which is the need of the hour as the government has a huge disinvestment target for the year and such abrupt decisions that adversely impact the rights of minority investors will not help it with the disinvestment process. It further shows the change in the stance of the government towards the treatment of PSUs and their minority shareholders. The equity market is also acknowledging it as is reflected in the performance of the stocks dedicated to the PSU theme.

Nifty PSE, for instance, has generated return of 82.53 per cent in the last one year. Nifty PSE is an index that comprises 20 stocks that are listed on the National Stock Exchange (NSE) where 51 per cent of a company’s outstanding share capital is held by the central or state government, or both, directly or indirectly. During the same period, Nifty 50 has given a return of 51.38 per cent. The average gain by these stocks in the last one year has been more than 90 per cent. The graph below shows the last one year return of BSE 500 and Nifty PSE.