After having taken investment positions in PSU pack two-3 years back & tracking the performance of these stocks thereafter , my take as follows, though there are conflicting views from different analyst on PSU stocks.
The PSU stocks especially railway , defence, renewables, (REC- PFC is a part of renewables) have undergone re-rating substantially and may further continue to do so wherever there is a scope if the govt policy such as heavy capex in infra project, railway , defence capex and Atma Nirbhar Bharat scheme continues . The other reasons for re-rating may be as follows as per my views
Have you heard of any PSU
(1) where CFO of a PSU resigning or any auditors resigning ?
(2) Any manipulation of balance sheet ?
(3) Diverting fund by promoter to other unrelated areas or related party transaction ?
(4) Promoter share pledging ?
(5) with worries such as USFDA compliance such as in pharma ?
(6) Not paying a substantial dividend consistently every year – though the amount may vary – The Govt holds majority stake and they need money in terms of dividend from PSU
(7)facing Income tax raid or GST raid ?
(8) Promoter entity Caught with insider trading
(9) working capital issue or fund raising issue from domestic/international market- All agencies are ready to lend to the Govt with most convenient rates?
(10) Not getting enough order from its customers ? Well, in most cases, the Govt is the customer and so the order book is healthy as of date is full for next 4-8 years.
If any of the above happens to a listed pvt stock which keep happening every now and then , the market becomes nervous and the stock price crashes.
The risks i could see in PSU stocks:
(1) If the govt changes its current policy as mentioned in 2nd para of this post
(2) The Govt is a majority share holder of most of the PSU’s. At times, They may take decisions which may not be in interest of minority share holders,
(3) OFS is frequent and normally they sell at a discount of 8-10% every time. Good thing is that they first give a hint in social media and after few days or a month or so, they declare OFS But then after having faced 2-3 OFS , i have found that the stocks have bounced back.It could be seen as a blessings in disguise as many institutional investors are on-boarded and the minority share holders gradually become majority and they can counter any decision by govt if it is not favourable to the shareholders.
Discl: Remain fully invested in a pack of Railway , Defence , renewables since last two years.
It is not a buy or sell recommendation in PSU stocks . Please apply due diligence before investing
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