From Coal India to ONGC, shares of PSUs log biggest gain in four months

Shares of several public sector undertakings (PSUs) rebounded on Thursday, even as the benchmark indices ended flat.

Market experts say the sharp jump was on account of value buying, as valuations in several counters have hit rock-bottom levels. The NSE PSE index — a gauge for performance of 20 PSUs — rose 3.12 per cent, its most since May 20. 

Among its constituents Coal India rose 7.3 per cent, ONGC 5.3 per cent, BPCL 4.5 per cent, and Nalco and Indian Oil by above 3 per cent each.

Most of these have seen a sharp drop this year and quote in single-digit price-to-earnings (P/E) multiples. Some analysts said that at current prices, few of the cash-rich PSUs could be value hunt. 

“The government has said PSUs with a lot of cash should give special dividend, considering fiscal constraints. The relatively cash-rich firms have moved up,” said Equinomics Founder G Chokkalingam. 

The NSE PSE index is down 9 per cent this year. In comparison, the Nifty is down just 0.1 per cent. Moreover, the NSE PSE is trading at a trailing 12-month P/E multiple of just 9, against the Nifty’s 12-month trailing P/E of 27. 

“The buying could have been triggered by the anticipation of some announcement regarding PSU governance or divestment. PSUs are anyway cheap in terms of their dividend yield, P/E and price-to-book ratio,” said Deepak Jasani, head (retail research), HDFC Securities.

“PSUs have seen consistent declines because of lot of supply from the government. However, the government’s current stance on selling at distress valuations is a significant positive,” said Naveen Kulkarni, head (research), Reliance Securities.

While valuations of the PSU pack are attractive, many institutional investors have steered clear due to low profitability and fear of adverse policies.  

Analysts said PSUs had been forced to pay high dividend payouts despite sub-par profitability to help the government achieve its fiscal deficit target. 

Moreover, the fortunes of some large PSUs have been hit due to adverse commodity and capex cycle. In the past few years, many PSUs dipped into their cash reserves or accumulated earnings to pay dividends.