Public Sector Undertaking (PSU) stocks experienced a significant boost following the Union Finance Ministry’s revision of capital restructuring norms. Key updates included changes in dividend payments, share buybacks, and stock splits aimed at enhancing capital management and improving equity performance. Here’s a detailed breakdown of this surge and why it’s an ideal time to invest in stocks selectively.
Capital restructuring norms: A game-changer for PSUs
The government has mandated state-run non-banking financial companies (NBFCs) to maintain an annual dividend of at least 30% of their profit, as per DIPAM guidelines. This move has directly impacted PSU stocks like Indian Railway Finance Corporation (IRFC), Bharat Heavy Electricals Limited (BHEL), and Power Finance Corporation (PFC), which rose by up to 6% during the BSE morning trade on November 19.
Additionally, stocks like Cochin Shipyard and Housing & Urban Development Corporation (HUDCO) saw a 5% rise, contributing to a 2% increase in the BSE PSU index.
This revised strategy aims to create more shareholder value, showcasing a compelling opportunity for those looking to invest in stocks with sound fundamentals.
Why did PSU stocks bounce back?
Since October, several PSU stocks have faced sharp declines due to weak Q2 earnings and profit booking. Stocks such as Gujarat Gas, MOIL, and Indian Oil Corporation Limited (IOCL) dropped between 26% and 42%. However, the recent revision in norms triggered low-level buying, especially for stocks that were previously undervalued.
Industry experts believe this correction allows bottom-fishing opportunities, especially in PSU banks and other strong performers. Selecting undervalued stocks now could yield significant long-term returns for those who choose to invest in stocks wisely.
Which PSU stocks look attractive?
While the entire PSU segment might not be ideal for broad investments, banking stocks are seen as a safe bet due to their strong earnings and lower valuations compared to their private counterparts. Experts recommend stocks like State Bank of India (SBI) and Hindustan Aeronautics Limited (HAL) for those planning to invest in stocks for medium to long-term gains.
How should investors approach the PSU sector?
For investors, the recent market correction presents an opportunity to acquire fundamentally sound PSU stocks at reasonable valuations. The revised capital restructuring guidelines are expected to enhance operational efficiency, making selective PSU investments more attractive.
While defence stocks are anticipated to gain traction closer to Union Budget 2025, the current focus remains on high-growth stocks like IRFC and PFC. Adopting a strategic, research-backed approach to investing in stocks can maximise returns while mitigating risks.
Invest safely
The revised capital restructuring norms have rejuvenated investor confidence in PSU stocks, leading to a noticeable surge in their prices. While the broader segment might seem challenging, selective investments in undervalued stocks backed by strong fundamentals could yield significant returns. For anyone looking to invest in stocks, now is the time to explore PSU equities for long-term growth.
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