INVESTING IN PSU

EFFECT OF NEW POLICIES AFTER ELECTION

SARASIJ MAJUMDER

PSUs or public sector undertakings are closely linked to the core sectors of the economy and have been successfully able to build a strong industrial base in the country. These undertakings are wholly, or  majorly owned by the Government of India. The core sectors of the economy play a crucial role in the nation building process, which sets the tone of the economy in the right direction. These core sectors are namely Banking &Finance, Coal, Capital Goods, Infrastructure, Oil, Power, Metal And Mining.

The current total market-capital of the PSU companies is more than Rs. 20 lakh crore. PSUs contribute a good amount of money regularly to the government in the form of dividend, excise duty, custom duty and corporate taxes.

Union Finance Minister Nirmala Sitharaman has announced major reforms in future for Public Sector Undertakings (PSU), as a result of which many sectors are likely to see large-scale consolidation and divestment of State-run firms.  The government is likely to announce a new PSU policy, which will focus on privatising PSUs in non-strategic sectors based on feasibility. This is a welcome move as it will open up certain markets to more private competition and consolidate the sprawling network of numerous PSUs. However, these bold announcements would unlock a lot of value only if they are transmitted quickly into action.  Currently, PSUs are witnessing a large rally .In fact, a number of PSU lenders are looking to raise capital to maintain, and improve their asset quality. It would be interesting to see how this pans out and if the stock price sustains at these levels.  

PSUs majorly get impacted by any changes in government policies. How much stake the government intends to trim in the future has a close linkage to the government fiscal deficit which always remains an overhang on the stock prices. Any economic development and infrastructure growth in the country is coherently interlinked, as any economic development is not possible without the development of infrastructural facilities. 

In order to measure the performance of PSU it is imperative to have a close watch on indicators such as their share in GDP, capital formation, employment generation etc. 

As an investor, it is imperative to look at the industry outlook before picking up stocks. When there are expectations of a cyclical recovery in the economy, the PSUs are well placed to benefit. Factors such as free cash flow, return on capital and equity, competitive business advantage, scalability of business and valuation shall be the basis for making investments in these stocks.

However, it is better to invest in a group of PSU, rather than in a few PSU companies.

I list below some options:-

1.0 SBI PSU FUND.

2.0 ICICI PRUDENTIAL PSU EQUITY FUND.

3.0 CPSE ETF.

4.0 BHARAT 22 ETF.

5.0 NIFTY PSU BANK ETF

I would state investing in more options help distributing the capital to achieve a balanced portfolio, and also distribute the investment risk.

If BJP/NDA forms new government, there could be surge in the equity market.

References:--

1.0 All information are in the public domain.

2.0 BLOGGER has over 50 years’ experience as a successful investor.

3.0 IMAGE:- Google

DISCLAIMER:-

This BLOG is posted purely for information purpose and shall not be used as   recommendation.

Any investment in the market has associated risk.