Investors’ appetite for undervalued stocks brought them to public sector companies on Tuesday, driving the index comprising shares of state-owned companies to a two-year high. The CPSE, or Central Public Sector Enterprises, index jumped 3.4% on Tuesday as against the 0.6% decline in the Nifty, opening up the possibility of another 20% rally over the next two months.
NTPC, which has 20% weight in the CPSE index, rallied 4.6% to Rs 112.65 on Tuesday while ONGC with 19.48% weight gained 3.7% to ₹118. The other two heavyweights, Coal India and Bharat Electronics gained 6% and 3%, respectively. The CPSE index has gained 20% in a month.
“Despite witnessing sharp run-up in recent months, PSU stocks remain a big underperformer for various reasons,” said Binod Modi, head strategy, Reliance Securities. “PSU stocks are expected to remain in focus led by widened valuations gap, superior dividend yields, and government’s divestment commitments, and improving earnings visibility of many PSUs.”
Analysts said most of the large PSUs are still undervalued and their shares have more room to run up. Investors, who are not keen on picking winners in the space, could buy CPSE Exchange Traded Fund (ETF) on the theme.
“It would be advisable to buy a basket of carefully selected public sector companies to take advantage of the opportunity,” said Gaurav Dua, head capital market strategy & investments, Sharekhan. “Another way of riding the PSU rally is to invest in CPSE ETF which is a pre-defined basket of PSU stocks available.”
Fund managers and analysts have been increasingly betting on re-rating of public sector companies because of the government’s pledge to privatise these entities. With the government also putting a stop to frequent shares sales in these companies, investors have started showing interest in many of these companies.
Gaurav Dua further said the dividend yield of CPSE ETF is at 4-4.5% as against 1-1.5% of Nifty ETF. The CPSE ETF, traded on the exchanges, closed at ₹25.53 on Tuesday
Technical analysts said accumulation of CPSE ETF was seen near the cluster of 20- and 50-day moving averages (DMAs) of ₹23.
The ETF has also seen a breakout of its multiyear bearish price channel on monthly charts, said technical analysts.