Should you stick to PSU stocks or exit after multibagger returns? Kotak Equities recommends this
Bullish sentiments and not bottom-up structural fundamentals are driving the rally in PSU stocks, Kotak Institutional Equities said in its latest note, as it highlighted problems in the «euphoric sentiment» surrounding PSU stocks.
Even as the headline S&P BSE Sensex gained an impressive 27% over the past 12 months, its peer S&P BSE PSU index (95%) delivered over three-fold returns during the same period.
The broad-based rally in PSU stocks is largely driven by top-down bullish sentiment for PSUs in general, Kotak said, adding that bullish short-term profitability and volume assumptions were driving the PSU counters. To add to the madness are incorrect valuation methodologies and unrealistic narratives in several sectors related to government agenda, policies and regulations, the domestic brokerage noted.
It said that the broad-based rally in PSU stocks across sectors is in itself a problem considering that this has happened without any meaningful change in the fundamentals or structural reforms in most sectors and the massive outperformance of PSUs versus private sector peers in the same sectors highlights the inherent flaw with the rally in PSU stocks.
«Government ownership seems to be the only common factor for the performance of PSU stocks, with disparate sector- and company-specific fundamentals,» the note said.
Citing examples of defence stocks under its coverage viz. BEML, Bharat Dynamics, Bharat Electronics, Cochin Shipyard, Hindustan Aeronautics (HAL) and Mazagon Dock Shipbuilders whose 1-year returns
