I am trying to understand why no significant buying seen in PSU stocks even though valuation is very cheap in comparison to their peers. @Riyas_Ahamed @TradeB2B @rupeshmandal @Vij @arunt @Rejeesh_Mathew
How would they remain cheap if there was buying
Lethargy, inefficiency, policy paralysis combined with lack of growth focus. Some dividend paying PSUs might seem alright I suppose. I don’t like to even look at PSUs in general (but at some support levels REC and PFC can be good.) SBI for instance has been used to clean scum and dirt of other banks, but hopefully those “mopping” services might not be that much needed going forward, now that stricter norms are in place.
Reason why I asked this question …because when I see P/E and PBxPE of non psu stocks …they are very very high… …very cautious to buy at this price …on the other hand PSU stocks are dirt cheap in comparison …like 5 or 10 pe and apart from price …high dividend
Ask me about this, my father who worked all his life in SBI becomes so angry when he reads the news of SBI rescuing another bank in trouble.
They are giving you back your own money
So you don’t see any upmove in these stocks ?
Competition from private sector has killed PSUs. Thats why even govt. is doing privatisation of PSUs. So why would anyone buy PSU stocks if you are looking for compounding growth.
Historically PSU stocks have always been cheap when you compare them on P/E. Apart from general inefficiencies associated with PSU, Couple of reasons which I have observed is:
- There is generally no earning growth in most PSU, they distribute good dividends but not invest much to grow
- They are very susceptible to turning loss making due to govt inefficiencies. And when they make loss, it is huge, wiping out couple of years of earning (MTNL, PSB banks)
- Govt use them as private piggy bank, diverting their money to unrelated acquisitions or bailouts (SBI rescuing all sorts of bank, ONGC buying HPCL at huge premium and so on)
- If nothing above, govt will come out with follow on offer at any time offering huge amount of shares and depressing prices.
Due to all this generally PSU enjoy less P/E and looks cheaper, however they are still risky investments.
Having said that, I have also observed that their price performance is cyclical. They rise quite a bit when sentiment are favorable and fall equally when tide turns.
So if you can time your entry and exit they are good investment. But if you are planning to buy and forget for long term, it is generally painful experience.
Wonderful explanation. Thanks for your time.
@curiousvi Thank you for your A2A. I’m honoured
First of all, I do not consider myself at any level of expertise to give commentary of macro-economics or market-trends.
However I can tell you this - the mood of the market at the moment (on a fear-greed scale) is somewhere between Fear and Extreme Fear. FIIs are seen dumping and leaving the scene. People are expecting a major correction to ensue. And rightfully so after a such a euphoric bull run. The markets were making merry when human lives are on standstill, a decent correction is totally justified. Given this, no matter how good the valuations are for some of the stocks, big boys (who can move the price) would hesitate to accumulate.
Secondly, PSUs are always in general valued lower than the privately held corporations. For an example,
|Stock||Revenue||Net Profit||Market Cap|
|SBIN||3.7 Lakh Crores||< 20k Crores||3 Lakh Crores|
|KOTAKBANK||50k Crores||< 10k Crores||3.5 Lakh crores|
Clearly, a seemingly tiny new-gen bank has a higher valuation than the PSU banking behemoth of SBI. The reasons can be many. But all said, the bilateral forces of the market believes that Kotak has a greater ability to operate at a higher level of profitability and efficiency than SBI. Who are we to question that
My advise is to not worry about these valuations and irrational behaviour of the market and go with the flow where the market is going. You and I are far too small to swim against the tide and make any headway.
So if you were me, would you invest in PSU because of valuation and dividend(kinda safe similar to FD)? and as you said we may see good correction from this level as well.
It should be determined based on how long a timeframe you have in mind. If you are talking 3-6 months or even 1 year, I’d rather not invest now. But if the plan are 5 years 10 years, by all means!
However dumping all your money in one go is not a good idea as well. If you are looking long term, you are better off accumulating slowly at dips. After all the likes of SBI are not expected to be going bankrupt no matter what. Please look at daily or weekly charts for critical levels to pick out on those ideal entry points.
I feel I have probably overstayed my welcome, and now I’m seen dishing out investment advise. Personally, I do not hold any stocks or long term positions. I trade during the day and go home with what I could make within those 6 odd hours. So do not take me seriously