India’s state-run firms seen extending dream rally on Modi bets
Modi’s expected re-election next year is seen supporting capital expenditure, further boosting their allure.
Modi’s government is spending billions of dollars on everything from roads and railways to defense, renewing interest in a sector that has for long been a straggler of India’s $4 trillion stock market.
The S&P BSE PSU Index, a gauge that includes some of the nation’s largest power utilities, miners, oil refiners and engineering firms, has surged 44% thus far in 2023. That’s beaten the 14.5% advance in the S&P BSE Sensex Index by the most in two decades, data compiled by Bloomberg show.
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“There is still room for further gains” as valuations are still low compared to non-state players, said Anita Gandhi, strategist at Arihant Capital Markets Ltd.
in Mumbai. “If the government comes back with a strong majority, they will have room to support these firms even more.” India’s general election is due early next year.
Investors expect the conducive government policy to boost the low valuation — the PSU gauge trades at 10 times its 12-month forward earnings despite being set for its best year since 2009.
That’s half the valuation of companies in the Sensex, which rose to a fresh record this week after Modi’s victories in state polls.
“These stocks have been ignored for a long time. In the meantime, they were building up their balance sheets and increasing capacity, all while staying profitable,” Arun Chulani, co-founder of First Water said in an interview.
The India-focused fund is betting on companies that benefit from the government’s infrastructure push.
State-run companies have been increasing their interaction with institutional investors in a bid to improve their valuation and market performance. The PSU
