PSU shares on a roll

Coal India, RCF, Power Finance, Indian Bank, REC, SCI, Hindustan Copper, BEML and Dena Bank have rallied 6-11% on the BSE.

The public sector undertakings or PSUs are on a roll, extending their past week's rally, after election results suggested the opposition Bharatiya Janata Party (BJP) and its allies won an absolute majority in the recently concluded Lok Sabha polls.

Coal India, RCF, Power Finance Corporation, Indian Bank, Rural Electrification Corporation, Shipping Corporation of India, Hindustan Copper, BEML, HMT and Dena Bank have rallied 6-11% each, while HPCL, Engineers India, Union Bank of India, BPCL and STC have gained 5% each on the Bombay Stock Exchange (BSE).

The S&P BSE PSU index, the largest gainer among thematic indices, is up 3.77% or 286 points at 7,866, compared to a 0.55% rise in benchmark S&P BSE Sensex at 0945 hours. The PSU index has touched a 52-week high of 7,888 during intra-day trades on BSE.

There is well-grounded expectation that the new government will usher in strong pro-reform policies and kick-start the investment cycle.

More importantly, given the crucial phase that we are in of India’s demographic dividend, the key now is that the new government delivers on the aspirations of one of the largest and fastest growing youth populations in the world and catalyses a meaningful and long-term up-move in the economy’s GDP growth trajectory.

The Indian equities are likely to be among the best-performing asset classes and we believe that sector rotation towards domestic cyclicals should be a strategy investors should continue to pursue over the medium term, an analyst at Angel Broking has siad in a client note.

Meanwhile, most PSU stocks are still trading well below their multi-year highs, though the benchmark indices have touched a new high on May 16 2014.  The S&P BSE PSU index is 30% away from its all-time high of 11,205 touched on January 04, 2008.