NEW DELHI: India’s top three mutual funds, which manage over Rs 9 lakh crore in debt and equity assets, added a number of PSU stocks to their schemes in January, as valuation discounts of many state-operated enterprises vis-à-vis Nifty widened to more than a half.
While India’s largest HDFC AMC was seen buying PSU stocks such as Union Bank, NTPC, PFC, Bharat Electronics, REC and Punjab National Bank, second largest fund ICICI Prudential added shares of Power Grid, NHPC, GAIL, SBI and HPCL. SBI Mutual Fund, the third largest, bought fresh shares of SBI, NTPC and ONGC, among others, data compiled from database Ace Mutual Fund showed.
PSU stocks have had a poor start to 2019, with the benchmark BSE PSU Index falling 4.58 per cent in January and another 3.26 per cent so far in February. This was against a 0.52 per cent rise in BSE Sensex in January and 0.79 per cent jump so far this month. Analysts say some of the PSUs look very attractive due to lower valuations.
HDFC AMC bought 76.49 lakh shares of Union Bank in January, as the exposure of its schemes to the PSU bank rose to Rs 398 crore at the end of January from Rs 348 crore last month. This was HDFC’s top buy in January in terms of number of shares purchased.
Out of the top 10 stocks HDFC AMC bought (in terms of number of shares) during the month, five were PSUs. The fund house added 50.49 lakh shares of NTPC, even as the total value of its investment on the counter declined to Rs 3,783 crore at the end of January from Rs 3,961 crore at the end of December. The fund house also bought additional shares in Bharat Electronics, REC and Indian Bank.
CLSA, which showed preference for PSU stocks such as ONGC, NTPC, SBI and Coal India last month, argued that while India was the only emerging market trading above its historical average, its state-owned enterprises were trading close to their all-time lows at a forward PE of 8.8 times. Their valuations relative the Nifty were compelling at a 50 per cent discount, it said.
ICICI Prudential bought 2.14 crore shares in NTPC, raising total holding to 43.21 crore at the end of January, up 5.2 per cent in a month. Its holding in ONGC jumped 7.78 per cent, or by 2 crore shares, to 25.70 crore shares. In value terms, it held Rs 6,000 crore worth of NTPC shares and Rs 3,900 crore worth of ONGC shares as of January 31.
In BHEL, the fund house raising its holding by 50 per cent. IOC and Coal India were the other PSUs where the fund raised its holding.
“Coal India is a proverbial value play with 8.5 per cent dividend yield. December quarter earnings will be the best in 18 quarters. At 11 times PE, I have never seen it cheaper. Obviously, there is an overhang that the government may sell some of its stake. But PSU stocks such as ONGC, NTPC, GMDC and Coal India are trading at abysmal levels. Once we are through these elections, PSUs will create a lot of wealth in the second half of 2019. Because they will then be focussed on governance,” Sanjiv Bhasin of IIFL told ET Now.
SBI MF was seen buying shares in SBI, NTPC and ONGC during the month. “Concerns over rising fiscal deficit, cross-holdings and PSUs being called to do national duties were the key reasons for the de-rating. However, a lot of the bad news is in the price, and select PSUs now offer favourable risk-reward, especially as we see the risk of slowing domestic flows driving a market derating,” CLSA said in January note.
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