Earnings growth no match for rally in CPSU stocks

Valuation rerating largely behind surge in mcap

- KRISHNA KANT

Central public-sector undertakings (CPSUS), such as State Bank of DEFYING TREND India, Bharat Petroleum Corporation, Oil & Natural Gas Corp, Coal India, NTPC, and Hindustan Aeronautics, have been leading performers on the bourses in recent quarters. The BSE PSU index, which tracks the share price of 56 listed CPSUS, has doubled in the past year, compared to a 23 percent rise in the BSE benchmark Sensex during the same period.

This boom in CPSUS share price, however, is not in line with their quarterly results. Most of the gains on CPSUs' market capitalization have come from valuation rerating, rather than higher revenues and net earnings.

The combined market capitalisation (mcap) of 79 listed CPSUS has more than doubled in the past 12 months, from ₹26.3 trillion at the end of March 2023 to around 53.4 trillion on Monday. In comparison, the combined net profit of these CPSUS on a trailing 12-month basis is up 42.4 percent in the past year, from ₹2.87 trillion in Q3FY23 to 4.09 trillion in Q3FY24. As a result, these CPSUS' trailing price-to-earnings (P/E) multiple has risen from 9.9x at the end of December 2022 to 13x now.

However, the sharpest rally in CPSU stocks has been in the non-BFSI and non-oil & gas sector, where earnings growth has been the least.