Public Sector Undertakings (PSUs) are attracting significant attention from retail investors, even as their shares have dipped from record highs. Data shows that in the September quarter of 2024, 56 out of 68 PSUs experienced a rise in retail investors despite many of these stocks witnessing a decline. This indicates a growing trend among individual investors to invest in stocks during market corrections, especially in government-backed companies.
Why are PSUs still popular?
PSUs offer stability and government backing, which appeal to retail investors looking to invest in stocks with long-term potential. Despite recent share price corrections—many stocks are down between 20% and 30% from their 52-week highs—investors seem undeterred. For instance, Canara Bank, IREDA, Bank of Baroda, and HUDCO added significant numbers of retail investors, even as their stocks fell by 19%, 29%, 18%, and 20%, respectively.
Investors betting on a rebound
The willingness to invest in stocks despite corrections comes from the belief that these price dips present an opportunity to buy at a discount. This trend of 'buying on dips' has become increasingly popular, especially among new retail investors who have entered the market in the last few years. The assumption is that PSU stocks, with strong government support, will recover and yield profits in the long run.
Caution urged by analysts
However, market analysts are advising caution. PSU stocks have seen significant rallies over the last two years, especially in sectors like defence, where stocks have surged up to 15 times, while earnings have only grown four times. This has resulted in inflated price-to-earnings ratios, making some stocks overvalued. Analysts caution retail investors to be mindful of the stocks they choose to invest in and to avoid simply buying or averaging down on every dip.
What’s next for PSU stocks?
As the market undergoes correction, analysts predict that PSU stocks may continue to decline until their valuations align with their fundamentals. However, for those willing to invest in stocks long-term, the eventual normalisation of prices could present opportunities. With continued government support and long-term growth potential, PSUs still hold value for those prepared to ride out short-term volatility.
Invest safely
While retail investors are betting big on PSUs, it’s important to approach these investments with caution. The strategy to invest in stocks during corrections can pay off, but only if investors choose wisely and avoid overvalued shares. As PSUs continue to experience fluctuations, retail investors should stay informed and consider their long-term goals before committing to any stock.
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