What is causing PSU stocks to soar?

New Delhi: Public Sector Undertakings (PSUs) stocks in India have been in focus since the government set the bar higher for PSUs by giving them mandates about increased capex spending and payment of interim dividends along with final dividends. Last month, Prime Minister Narendra Modi said in jest that stock market investors should invest in PSUs which were criticized by the Opposition in the past. ”Here’s a guru mantra for those who follow the stock markets: Place your bets in those PSUs which they (the Opposition) abuse. Your money will surely grow,” the PM said.

Prime Minister Modi’s light-hearted advice on the floor of the Lok Sabha has led to an uptrend where PSU stocks have been witnessing a surge over the last month as shares of some PSUs seem to have caught the eyes of the investors.

IRFC, IRCON, RVNL see rise in share prices

Select railways stocks, namely, Indian Railway Finance Corporation (IRFC), IRCON International and Rail Vikas Nigam Ltd (RVNL) have been in uptrend in recent sessions. In the last five sessions, IRFC share price has risen over 20 percent whereas RVNL share price surged over 17 percent. Financial experts in the industry are urging caution regarding these stocks following their recent price increases, and some are going as far as suggesting investors to consider taking profits.

According to share market analysts, what makes this rally in PSU stocks even more remarkable is that it is not confined to a specific group or sector. Data suggests that nearly 80 percent of the 55 PSU stocks from the BSE PSU and the BSE PSU Bank index have seen their shares surge anywhere between 10 percent to 85 percent.

Several PSU stocks that surged are Shipping Corporation of India (62 percent), BHEL (up 42 percent), NMDC (up 28 percent) and BEML (up 22 percent). Other PSU stocks that saw a good rally over the last one month since the Prime Minister’s address include MTNL (up 26 percent), Hindustan Copper (up 12 percent).

PSU stocks: Underperformers

But, there have been few underperformers as well. Shares of Oil Market Companies (OMCs) like HPCL (down 3 percent), BPCL (down 0.14 percent), Indian Oil (down 0.22 percent) have been under pressure due to the sharp fluctuation in crude oil prices.

PM Modi had said that despite the superficial criticism of his government on PSU companies, PSUs are delivering robust numbers.

Market observers believe that the pattern of government spending in the past few years has re-triggered investment in PSU stocks. Though the upward momentum in PSU stocks may continue, share market analysts urge investors to be cautious as stocks could be overvalued.

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