Are PSU stocks riding a bubble? mixed results cast doubt on the rally
Also Read: Nifty 50 touches new all-time high, extends gain for 5th day in a row However, amidst this bullish trend, analysts have raised questions regarding the continuity of the PSU stock rally. This skepticism arises from the mixed performance exhibited by PSU companies in the third quarter (Q3). Companies in the BSE PSU Index beat analysts’ expectations by a mere 1% in the three months end December, the slowest pace in six quarters, according to data compiled by Bloomberg.
That’s not enough to justify a rally that sent the gauge to a fresh record on February 15 and has more than doubled the measure’s market value to $750 billion in the past year, according to the Bloomberg report. The “risk-reward is not very good, so don’t bet on a broad rally. It’s time to become selective, many indicators are quite overbought for this space, and investors should avoid taking bullish calls in the short term," Ruchit Jain, an analyst at brokerage 5Paisa Capital, told Bloomberg.
Also Read: Is market correction on the horizon amid high valuations? Looking at earnings, stocks that have more than doubled investors' money have reported a weak set of numbers. For instance, SJVN, which rallied 265% in a year, has reported a 51.6% drop in its net profit to ₹139 crore in Q3FY24, compared to ₹287 crore during the same period last year. BEML was another multi-bagger stock that posted a drop in Q3 net profit.
Similarly, SAIL reported a 22% year-on-year decrease in net profit for the same period. Additionally, railway PSUs such as Indian Railway Finance Corporation and Rail Vikas Nigam both posted declines in their Q3 net profit. While some analysts have projected that weak fundamentals could potentially limit the upside rally in PSU stocks,
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