Discounted PSU stocks like GAIL, SBI, NTPC good bets, say analysts

Mumbai: State-owned GAIL, Hindustan Petroleum Corp, Bharat Petroleum Corp, NTPC, State Bank of India, Coal India and Power Grid Corp among others, which are grossly undervalued compared with their global peers, offer great value, according to analysts.Some of these stocks have finally started reacting positively to earnings delivery and the transition to green energy. Most of them could be strong re-rating candidates if the government stops frequent selling of their stake, said analysts.“The DIPAM (Department of Investment and Public Asset Management) secretary’s recent statement highlighted frequent dividends from PSUs, possible inclusion of market cap improvement as a key target for management and government avoiding frequent stake sales,” JM Financial analyst Subhadip Mitra said. “If acted upon, these measures could lead to a re-rating of India’s CPSE cohort for good.”Stocks such as SBI, Power Finance Corp, Gail, ONGC, REC and Engineers India have rallied between 20% and 30% in the last one month. BEML, Cochin Shipyard, Indian Oil, Bharat Electronics and NTPC jumped 10-15% in one month.“We are witnessing a catch-up move in Nifty PSE and Nifty PSU Banking”, with both indices having crossed their recent swing highs on the weekly chart and also sustaining well above their respective 200 DEMA (double exponential moving average), said Siddhartha Khemka, head of retail research at Motilal Oswal. “Considering the current chart structure of PSU Banking and PSE indices and their components, we are expecting continuation in ongoing momentum in coming days too,” he added.79650335In a scenario of dismal returns from fixed deposits and money markets funds including liquid funds, PSU stocks offer healthier dividend yield, which led investors to lap up these stocks, said analysts.“As money continued to flow into equities, PSU stocks offered a strong value proposition to investors as these stocks were neglected for long despite reporting sustained earnings,” said Binod Modi, the head of strategy at Reliance Securities. “As long as interest rates or bond yields remain depressed, high dividend yield PSU stocks should continue to see investor interest.”Stocks such as REC, SJVN, Power Finance, Hudco, NHPC, Engineers India, Coal India and ONGC are currently offering a dividend yield of 5-13% and most of them are trading at a price to earnings ratio of less than 10.PSU stocks have seen sharp corrections due to frequent stake sales by the government, selling by large foreign funds as a result of increased environmental, social and governance focus.

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