High dividend yields and good Q2 show boost PSU stocks

New Delhi: Buoyed by higher dividend yields, buybacks and a good show in the quarter that ended in September this year, investors are increasingly getting drawn to public sector undertaking (PSU) stocks to sidestep volatility of the broader markets. The BSE PSU index has fallen only 2 percent since September 21 when the market correction began against the benchmark Sensex, which lost over 7 percent in the same period.

PFC and BEL among top performers

Among the top performers that gained over 20 percent on the index were two state-owned enterprises — Power Finance Corporation (PFC) and Bharat Electronics Limited. Stocks of smaller PSU banks also found takers with shares of Oriental Bank of Commerce, UCO Bank and Allahabad Bank rising 15 percent each.

PSUs offer a good investment opportunity

Experts said that the crisis-ridden non-banking financial companies (NBFCs) have dealt a blow to investors’ risk appetite significantly in the last two months. In such a scenario, PSUs offer good investment opportunity, especially through dividend yields. Besides, most PSUs are trading at deep discounts in terms of valuations after underperforming during the bull run in 2017 and early 2018.

PSB stocks may gain traction in future

As analysts expect the non-performing assets (NPA) cycle to peak in the next few quarters, the stocks of PSU banks are expected to gain traction in the time to come. State-owned bank stocks have also taken a huge beating in recent times on account of asset quality concerns. Most of PSU bank stocks are still trading below their book value, which makes them an attractive buy, add market participants.