The Wrap🌯 4th Feb 2024 | The PSU Reign 👑
Your weekly digest of everything important in Indian Stock Market
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PSU Rally widens, Non Event Budget, Fed holds rates, RBI clamps down on Paytm, Broader markets remain overbought
The richest investor in town these days is The President of India.
Technically, all ownership of public sector undertakings (PSUs) falls under the office of President of India. A fearless and endless rally in public sector companies for last 12 months have placed them at the top of the performance basket.
Investors in PSU index have essentially doubled their money (yes, the investors in the index). Individual stock names have rallied even more.
A question on everyone’s mind is now, where do we go from here?
So, here is a brief analysis on PSU basket of companies, esp. the ones in Nifty PSE index.
The Nifty PSE Index comprises of 20 companies in which at least 51% of outstanding share capital is held by the Central Government and/or State Government, directly or indirectly.
The below is the 20 year price to book of Nifty PSE index.
Here is the zoomed in version of the same price to book chart but for 10 years.
If you look at the 10 year chart, it indicates that we have approached a peak, but if you look at 20 year chart, it appears as if the rally is just starting.
Which camp do you sit in, depends on your individual appetite for risk and return. Does your philosophy lean towards the glass half full or the glass half empty?
The PSU companies aren’t cheap today as they were a year ago and valuations vary widely. With some companies commanding 80x price to earnings while other still trading at 14x price to earnings even after a 100% rally.
This week was packed with two big events - the interim budget, which became a non event as the government chose not to ruffle up feathers in an election year. As expected, there were big allocations towards defence and solar sector but maybe not as big as one had hoped for.
The other was the Fed decision on interest rates. Here too, on expected lines the Fed left interest rates unchanged but gave mixed messages on how soon it will start cutting rates.
Market participants have moved their bets on rate cuts from March to May.
Finally, market breadth still remains extended (though not as extended as few weeks ago) with sectors like energy, infra, PSUs, PSU banks and real estate taking the lead, and IT, Pharma and Autos following. Other sectors doing well are cements and hotels. Several metal stocks also indicating accumulation as per their charts.
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