{"id":979,"date":"2021-07-05T13:37:13","date_gmt":"2021-07-05T08:07:13","guid":{"rendered":"https:\/\/www.eqwires.com\/tutorials\/?p=979"},"modified":"2021-07-05T13:37:15","modified_gmt":"2021-07-05T08:07:15","slug":"psu-stocks-turning-value-creators-after-a-decade-of-underperformance-edelweiss-bets-on-these-shares","status":"publish","type":"post","link":"https:\/\/www.eqwires.com\/tutorials\/psu-stocks-turning-value-creators-after-a-decade-of-underperformance-edelweiss-bets-on-these-shares\/","title":{"rendered":"PSU stocks turning value creators after a decade of underperformance; Edelweiss bets on these shares"},"content":{"rendered":"\n

Listed public sector companies may now be turning the page, after a decade of underperformance, to emerge as attractive investment opportunities. Domestic brokerage and research firm Edelweiss believes that as the environment turns reflationary and valuations remain at a discount, the fortunes of PSU stocks could change. \u201cPSUs have been value traps in 2010s (flat for decade) in stark contrast to being value creators in 2000s (10x in 10 years),\u201d Edelweiss Securities said in a note. PSU stocks underperformed during the previous decade due to ballooning debt and hurt by the government\u2019s pro-cyclical fiscal policy.<\/p>\n\n\n\n

What\u2019s changing for PSU stocks?
<\/strong>Moving away from the deflationary trend could benefit the PSU stocks. \u201cWith commodity price rally broadening now to oil prices and demand recovery underway, it augurs well for PSU profitability and stock performance. Historically, during commodity price rise, PSU stocks have delivered very strong returns, with their earnings tending to do better than that of Nifty,\u201d they said. Further, PSU companies\u2019 capex may have peaker, according to Edelweiss. Capital work in progress (as % of gross block) seems to have peaked out and is now trending lower, suggesting a lot of assets now coming on stream. \u201cWith capex cycle peaking and improving cash flows, there is significant deleveraging potential for equity investors. Thus, PSUs present large operating and financial leverage potential to capitalise on the changing macro environment,\u201d they added.<\/p>\n\n\n\n

PSUs, except banks, could also get an edge for operating in oligopolistic sectors. In most industries (ex-banks), their elevated market shares have remained broadly intact. Hence, changing environment can quickly lead to a bounce in these franchises,\u201d the note said. PSUs have 83% market share in the coal sector, 88% in fuel retailing, 40% in power transmission, and 75% in oil exploration.<\/p>\n\n\n\n

To top it all PSU stocks are available at attractive valuations. Currently, PSUs (ex-financials) are trading at a record 60% discount to Nifty. Edelweiss highlighted in 2011 these traded at a mild premium. \u201cWhile we are far away from the business cycle vibrancy seen in 2011, we believe such large valuation discount for strong franchises (as most are present in oligopolistic industries) is unjustified,\u201d Edelweiss said.<\/p>\n\n\n\n

Investable themes
<\/strong>Edelweiss has classified PSUs into three categories; structural stories, cyclicals, and balance sheet improvement. Among the structural stories, the brokerage firm believes city gas distribution companies with the power of pricing and limited competition could benefit going ahead. Along with these, Container corporation is also seen as a structural story. \u201cIn India, the share of railway freight is significantly lower than that of roadways\u2013one of the bottlenecks for manufacturing. However, things are likely to change on this front with the commissioning of the Western Dedicated Freight Corridor (DFC),\u201d they added.<\/p>\n\n\n\n

In the cyclical space, oil marketing companies are expected to benefit from strong refining and marketing margins. They added that marketing margins are currently on a structural upswing and current high levels should sustain. Further upstream oil and gas businesses such as GAIL and ONGC \u2014 both deep cyclicals are believed to offer value at current prices.<\/p>\n\n\n\n

Banking on improvement in balance sheets, Edelweiss Securities has picked utilities as the cheapest way to play industrial recovery. Banks have also made the cut in this theme as analysts expect a turning corporate cycle to benefit PSU banks with their strong buffers.<\/p>\n\n\n\n

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Listed public sector companies may now be turning the page, after a decade of underperformance, to emerge as attractive investment opportunities. Domestic brokerage and research firm Edelweiss believes that as the environment turns reflationary and valuations remain at a discount, the fortunes of PSU stocks could change. \u201cPSUs have been value traps in 2010s (flat for decade) in stark contrast to being value creators in 2000s (10x in 10 years),\u201d Edelweiss Securities said in a … Continue reading “PSU stocks turning value creators after a decade of underperformance; Edelweiss bets on these shares”<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":980,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[201,172,136,138,134,164,217,368,139,140,324,106,272,266,98,72,97,184,73,268,135,137,133,330,104,141,299,161,160,159,74,210,75,158,166,311,228,227,103,254,102,224,257,298,300,101,373,105,301,165,327,329,76,77,78,79,247,347,365,356,308,358,361,355,353,352,350,363,215,216,174,80,81,99,218,82,340,339,320,183,168,167,170,251,83,84,85,86,87,108,88,202,155,154,273,89,100,90,91,92,93,94,95,236,255,232,231,250,374,96,3,260,252,248,249,322,107,192,220,360,275,223,156,157,341,246,238,207,177,176,175],"tags":[4,5,267,6,200,7,116,19,149,147,173,145,14,11,150,153,120,9,271,190,191,13,18,8,10,269,148,151,146,331,319,16,122,144,23,25,285,27,21,194,50,229,226,124,33,253,126,225,119,20,28,49,127,121,230,295,125,115,22,113,29,245,357,310,351,379,380,377,213,26,182,111,130,31,62,34,30,42,57,112,343,321,56,64,206,59,53,264,43,51,32,187,35,55,44,270,288,196,47,37,195,45,39,36,40,203,38,143,152,129,142,46,63,67,60,61,65,234,71,235,54,256,117,233,68,287,193,241,335,205,66,204,70,259,221,291,274,222,163,69,58,342,239,208,114,178,181,179,180],"class_list":["post-979","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accurate-stock-tips-provider-in-india","category-best-advisory-service-provider-for-beginners","category-best-bank-nifty-future-calls","category-best-bank-nifty-options-tips-provider","category-best-bank-nifty-trading-tips-provider","category-best-equity-advisory-services-in-india","category-best-ethical-investment-advisor-in-india","category-best-financial-advisor-websites-in-india","category-best-index-future-services","category-best-index-options-services","category-best-intraday-advisor-in-india","category-best-intraday-call-provider","category-best-intraday-jackpot-calls","category-best-intraday-research-company","category-best-intraday-tips-for-tomorrow","category-best-intraday-tips-provider-in-india","category-best-intraday-tips-site","category-best-intraday-tips-website-in-india","category-best-investment-advisor-in-india","category-best-jackpot-tips-provider","category-best-nifty-future-calls","category-best-nifty-options-tips-provider","category-best-nifty-trading-tips-provider","category-best-option-trading-telegram-channel","category-best-options-tips-provider-in-india","category-best-options-trading-tips-provider-in-india","category-best-paid-stock-recommendation-sites-india","category-best-performing-pms-in-india","category-best-pms-in-india","category-best-portfolio-management-services-in-india","category-best-sebi-registered-advisory-company","category-best-sebi-registered-investment-advisor","category-best-sebi-registered-investment","category-best-sebi-registered-research-analyst","category-best-sebi-registered-stock-tips-provider","category-best-sebi-registered-telegram-channel","category-best-share-market-advisor-in-india","category-best-share-market-advisory-company-in-india","category-best-share-market-consultants-in-india","category-best-share-market-tips","category-best-share-market-tips-provider-in-india","category-best-share-tips-provider-in-india","category-best-stock-advisor","category-best-stock-advisor-websites-in-india","category-best-stock-advisory-service-in-india","category-best-stock-market-advisory-services-in-india","category-best-stock-market-telegram-channel","category-best-stock-market-tips-provider-service","category-best-stock-recommendation-service-in-india","category-best-stock-tips-provider-in-india","category-best-stock-tips-provider-in-telegram","category-best-telegram-channel-for-stock-market-tips-in-india","category-business","category-commodity-market","category-currency","category-equity-market","category-equity-research-analyst","category-eqwires-best-intraday-tips-provider-in-india","category-eqwires-best-investment-advisor-in-india","category-eqwires-best-option-trading-telegram-channel","category-eqwires-best-sebi-registered-investment-advisor-in-india","category-eqwires-best-sebi-registered-telegram-channel","category-eqwires-best-stock-advisor-websites-in-india","category-eqwires-best-stock-tips-provider-in-telegram","category-eqwires-best-stock-tips-provider-on-telegram","category-eqwires-genuine-stock-tips-provider","category-eqwires-high-accuracy-stock-tips-provider","category-eqwires-most-successful-stock-advisors-in-india","category-ethical-sebi-registered-investment-advisor","category-ethical-sebi-registered-research-analyst","category-fact-about-operator-based-calls","category-fii-based-calls","category-foreign-markets","category-free-intraday-stock-tips-for-tomorrow","category-genuine-intraday-tips-provider","category-genuine-stocks-tips-provider","category-googles-highest-ranking-sebi-registered-research-analyst","category-googles-highest-ranking-sebi-registered-stock-advisory-company","category-high-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