The way the market moves, and I am new to these things, it seems it ‘discovers’ a sector, and then moves from top to bottom companies. Within the sectors too, it searches for sub-sectors.
So, within the PSU rally, first it discovered Railways, Banks, Power, and Defence. Not necessarily in the same order. And many of them were really cheap. But to me now, the markets have a tendency of going bonkers. IRFC going 4 or more times in six months. SJVN jumping from 40 to 146 in the same time, to cite just a few examples, showed this discovery. The maness is also reflected in BHEL ROCE: 3.33 % and ROE: 1.70 %, being market’s darling.
I have tried to discover sane areas within the market’s frenzy, and here the Oil PSUs fit in. Chennai Petro is still at 4.8 PE. ROCE is 45.5% and ROE is 77.9 %.
In the case of OIL, P/E is 9.14. ROCE is 25.4%, ROE is 25.2 %.
PE of RVNL is already 38.6. P/E of IRFC is 34.6.
So, clearly, now the Railway PSUs are expensive, though today again there is a move in the RVNL etc. The Oil PSUs, and I have mentioned only two, are clearly cheap. There are many negative factors, like regulation, in the case of PSUs, but to me they appear cheaper despite these factors.
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