CPSE index nears record high after six years; RVNL zooms 125% since March

In the past one month, CPSE index has outperformed the market by surging 7 per cent, as compared to 3.4 per cent rise in the S&P BSE Sensex.

Shares of Central Public Sector Enterprises (CPSEs) continued their northward movement with the S&P BSE CPSE index hitting a 52-week high at 1,851.90 on the BSE in Wednesday’s intra-day trade amid a sharp rally in index stocks.

The CPSE index quoted close to its all-time of 1,852.79, touched on November 7, 2017. In past one month, CPSE index has outperformed the market by surging 7 per cent, as compared to 3.4 per cent rise in the S&P BSE Sensex.

The S&P BSE CPSE Index is designed to measure the performance of CPSEs listed on the BSE. CPSEs are companies for which 51 per cent or more of the direct holding belongs to the Central Government of India.

Rail Vikas Nigam Limited (RVNL), Bharat Heavy Electricals (BHEL), Engineers India, NLC India and Indian Railway Finance Corporation (IRFC) from the index have rallied between 6 per cent and 10 per cent on the BSE in intra-day trade today. In comparison, the Sensex was down 0.38 per cent at 11:18 AM.

RVNL, Bharat Dynamics, Hindustan Aeronautics (HAL) and Ircon International have hit their respective all-time highs on the BSE.

Among the individual stocks, RVNL hit a new high of Rs 130.20, after it rallied 10 per cent in intra-day trade. Since March, the stock price has more-than-doubled or zoomed 126 per cent from a level of Rs 57.50 on expectation of healthy outlook on the back of strong order book and new order inflows.

RVNL mostly works on a turnkey basis and undertakes the full cycle of project development from conceptualisation to commissioning including stages of design, preparation of estimates, calling and award of contracts, project and contract management, etc.

RVNL follows an asset-light business model, which helps keep its fixed asset part lower, helping it to keep its balance sheet stress free, and resulting in lower inventory days. RVNL is a project-executing agency working for and on behalf of the Ministry of Railways (MoR) and has a strong order book visibility, which is likely to play a key role in the development of railway infrastructure in India.

Meanwhile, HAL achieved a new milestone with the company’s market capitalisation (m-cap) surpassing the Rs 1-trillion mark as the stock of state-owned defense company  hitting a new high of Rs 3,021 (up 3 per cent) on the BSE in intra-day trade on Wednesday.

HAL, a defence public sector undertaking (DPSU), is engaged in the business to undertake design, development, manufacturing, maintenance, repair, overhaul, and servicing of products like aircraft, helicopters, engines and other related systems like avionics, instruments, and accessories.

It also engages with the Indian Space Research Organisation (ISRO) to contribute to the space programmes of the country. The Government of India (GoI) remains HAL's largest shareholder, with a current shareholding of around 75 per cent.

The order book of the company stood at around Rs 82,000 crore at the end of March 2023 after liquidation of the supplies during FY23. During the year, fresh contracts of around Rs 26,000 crore were received, which includes manufacturing contracts for 70 HTT -40, 6 Do-228 Aircraft and PSL V launch vehicles. In addition, on ROH front fresh orders to the tune of Rs 16,600 crore were received during the year, HAL had notified in a release.

Shares of BDL too hit a record high of Rs 1,047.50, up 5 per cent on the BSE in intra-day trade. The stock of defense company surpassed its previous high of Rs 1,029.60, touched on April 12, 2023.

The defence sector looks well placed in terms of increasing domestic procurements by the government for our armed forces. With imports coming down, the risk of supply chain issues is also receding in this sector.

“We have been witnessing a structural shift in the defence budget with increased allocation for modernized indigenous platforms. The current government is looking very committed on this, which is very clear from the recent announcement of increasing domestic procurement budget share to 75 per cent for FY24 from 68 per cent for FY23. This implies growth of ~19 per cent against 8 per cent growth budgeted for total capital outlay,” analysts at ICICI Securities said in defense sector report.

The increase in domestic procurement will directly benefit domestic players including defence PSUs and private players in terms of more order inflows during the year for major platforms & sub-systems/components. As per estimates, orders worth Rs 5-6 trillion will be placed with Indian defence players in the next four to five years. Defence PSUs like HAL, BEL and BDL are poised to do well considering they already have a strong order backlog of 3-4x of TTM revenues and a healthy pipeline of orders, the brokerage firm said.