PSU stocks are a gold mine of gains
Madhu Kela has always been bullish on PSU stocks. In his last interview, he had cited the example of how HAL had turned out to be a magnificent money spinner for investors.
“HAL has broken the myth that you can’t make money in public-sector companies… PSUs have done exceptionally well point-to-point… ,” he said.
Ramesh Damani, who is fondly known on Dalal Street as a “PSU Bull” , echoed the same sentiments.
“I am of the firm belief that this time, the leadership is with the Public Sector stocks,” he said with utmost confidence.
It is worth noting that the flagship of Ramesh Damani’s portfolio is a multibagger PSU stock.
Kela pointed out that PSU stocks have enriched investors handsomely with the Nifty PSE Index rising nearly 62% so far in 2023. The overall PSU market capitalisation, which was nearly ₹14 lakh crore, has now crossed ₹45 lakh crore in the last three years. Several individual PSU stocks have given gains of 100% to 200% on a YoY basis.
Kela made it clear that he is still bullish about PSU stocks as their valuations are still reasonable.
“With this certainty of government at the center, given that it will last for many years even beyond 2024 clearly, I think PSU stocks will gain out of that stability at the center. If I look at valuation, even though stock prices have gone up, the valuations are not expensive,” he said.
“Markets are reaffirming our faith and conviction in the public sector, with massive oversubscription seen in QIP of PSU banks. Hearing 8x demand in BOI QIP with 2-3x demand coming from most respected MFs. Gone are the days when Govt/PSEs used to bailout the fund issuances, now there is a long queue to get allocations!,” Kela tweeted.
Markets are reaffirming our faith and conviction in the public sector, with massive oversubscription seen in QIP of PSU banks.
Hearing 8x demand in BOI QIP with 2-3x demand coming from most respected MFs.
Gone are the days when Govt/PSEs used to bailout the fund issuances, now…— Madhusudan Kela (@MadhusudanKela) December 6, 2023
Kela is referring to Bank Of India’s Rs 4,500 crore QIP which was subscribed 4.11 times at an issue price at Rs 100.20/share.
#JustIn | Bank Of India’s Rs 4,500 crore QIP closes, subscribed 4.11 times, issue price at Rs 100.20/share https://t.co/juOokeibMz pic.twitter.com/66fHOuPv8H
— CNBC-TV18 (@CNBCTV18Live) December 8, 2023
Financial stocks look compelling with good risk reward
Madhu Kela has always been bullish about PSU and Private Bank stocks. In July 2022, when the markets were in the doldrums, he had advised that “Sentiment in Dalal Street is changing rapidly from despondency to optimism. Grab stocks now before the hordes rush in and push prices up. PSU Banks are at very cheap valuations & offer great margin of safety. SBI & ICICI Bank are good buys now,”.
This turned out to be excellent advice as seen from the multifold gains on the table.
Kela reiterated the same view now as well. He said financials offer good risk reward at this point and there is valuation comfort in that sector.
“I would say the financial space looks very compelling to me on a risk-reward basis because these stocks have not participated in the last 12-18 months meaningfully,” he said.
“I would go so far as saying that we have always liked public sector banks over private sector banks, but now on the bet is the mix of the public sector, and also some private sector banks, which have consolidated beautifully.”
It is worth recalling that Saurabh Mukherjea and Team Marcellus have expressed a similar view, albeit in the context of private financial stocks like HDFC Bank, Axis Bank, Bajaj Finance, Chola Finance, Home Finance etc. It is pointed out that the competitive intensity in the consumer lending space is expected to tone down in the coming months allowing the prudent lenders with leeway on leverage to aggressively pursue higher market share. Combined with their historically low valuations, the current scenario presents a situation with asymmetrical payoff for investors.
Return Of Institutional Flows
Another factor supporting the market has been the return of institutional flows over the last few sessions. Foreign investors were mostly buyers in the cash market through last week and Friday’s figure was even higher compared to domestic investors.
Kela says he won’t be surprised if the flows resume over the next few months with the certainty of these election results.
“And when that money comes in, it will only go into large liquid companies and I think banks will be on the forefront of recipient of this kind of liquidity from the foreigners,” he said.
Foreign investors were net buyers in November after being sellers worth nearly $5 billion in Indian equities over September and October.
Infrastructure stocks are at compelling valuations
Kela disclosed that he is invested in many infrastructure companies in the market and he believes that the market is still underestimating the potential of these companies.
“If you look at the order book of a lot of these infra companies, their performance in the last two quarters, and the quality of balance sheet, which is getting built up, and with this certainty again, this good work will continue for the next few years, if not more. At least I can see a visibility of that kind of timeframe, I think these stocks are still trading at very, very compelling valuations,” he said.
The ET pointed out that, upping its bet on India’s infrastructure story, GQG Partners bought close to 5% stake in GMR Airports Infrastructure in a deal worth Rs 1,672 crore through the open market.
GQG Partners Emerging Markets Fund bought 92,636,787 shares, and Goldman Sachs GQG Partners International Opportunities Fund bought 19,02,45,637 shares, according to bulk deals data. The shares purchased represent a cumulative stake of 4.7%.
Year-to-date, shares of GMR Airports have given more than 73% returns to investors. In 3 years, the stock has rallied more than 190%. According to the shareholding pattern available on Trendlyne, foreign institutional investors held 28% stake in the company as of September end, and mutual funds about 1.3% stake.
For the September quarter, GMR Airports Infrastructure reported a consolidated net loss of Rs 190 crore, against Rs 197 crore a year ago. The company’s revenue during the quarter rose 25% to Rs 1,607 crore.
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