Skip to main content

Retail investors should be selective about investing in public sector stocks

The government's keenness to sell shares in public sector units (PSUs) should be music to the ears of many investors.

According to the government's plans, 60 PSUs will issue shares through initial public offerings (IPOs) or followon public offers (FPOs). Some mega issues of unlisted companies that investors can expect include from Bharat Sanchar Nigam Ltd, Sutlej Jal Vidyut Nigam Ltd and Coal India.

Also, the government plans to pare down its holdings in listed entities such as National Thermal Power Corporation, Rural Electrification Corporation and National Mineral Development Corporation (NMDC).

No wonder fund houses are planning to launch PSU-oriented schemes. Sundaram BNP Paribas PSU Opportunities and Religare PSU Equity have already been launched. Market sources said SBI Mutual Fund could be planning a similar scheme.

PSUs have the potential to give high returns at least for the next three-four years. The divestment would give these companies better operational flexibility and increase accountability. It could lead to re-rating of these stocks, he said.

At present, this asset class has a valuation gap compared with the private sector. This will narrow as operational parameters of PSU companies improve.

The good news does not end there. PSUs today account for around 30 per cent of the overall market capitalisation of the Bombay Stock Exchange. Market experts expect this to go up to 40-45 per cent in the next two-three years.

All these factors make PSU stocks or schemes ideal investments. These are quality companies in sectors that are core to India's growth story, explaining that they are backed by the government and so unlikely to go bust in the near future. Also, many of them have huge order books and are known to pay high dividends.

However, the positives come with aword of caution from experts. For one, investors looking for listing gains should avoid these stocks. Given that the markets are in an uncertain zone, many of these stocks may not list at a big premium. Ideally, look at these stocks with a long-term perspective, at least two-three years.

Further, experts are worried about valuations. Looking at the price the government has fixed for NTPC's share sale, I think retail investor should stay away from PSU companies. It clearly shows that the government is planning the sale based on market prices and not real valuations. The share price for the FPO is not justified. There is a discount for employees but not for small investors. The example of NHPC and Oil India. After losing money in NHPC's IPO, retail investors preferred to stay away from the Oil India issue.

Meanwhile, the government's keen approach to divestment has led to a huge rally in PSU stocks. Just a couple of weeks ago, the PSU index hit its 52-week high. In fact, it has outperformed the Sensex in the last one year. While Sensex's returned 78 per cent, the PSU index returned 88 per cent.

Though there has been some correction recently, experts suggest caution. Small investors will see better buying opportunities in the near future.

Popular posts from this blog

National Savings Certificate

National Savings Certificate Here's everything you need to know about the 5-year savings scheme offered by the Government This is a 5-year small savings scheme of the government. From 1 July 2016, a National Savings Certificate (NSC) can be held in the electronic mode too. Physical pre-printed NSC certificates have been discontinued and replaced with Public Provident Fund-like passbooks. What's on offer The minimum amount you can invest in them is Rs100 and there is no upper limit. Under this scheme, all deposits up to Rs1.5 lakh qualify for deduction under section 80C of the Income-tax Act, 1961. The interest earned is taxable. You can invest in multiples of Rs 100. These certificates can be owned individually, jointly and also on behalf of minors. The interest rates for all small savings schemes are released on a quarterly basis. The effective rate for NSC from 1 October to 31 December is 8%. The interest is calculated on an annual compounding basis and is given along w...

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

Mutual Fund Review: HDFC Index Sensex Plus

  In terms of size, HDFC Index Sensex Plus may be one of the smallest offerings from the HDFC stable. But that has not dampened its show, which has beaten the Sensex by a mile in overall returns   HDFC Index Sensex Plus is a passively managed diversified equity scheme with Sensex as its benchmark index. The fund also invests a small proportion of its equity portfolio in non-Sensex scrips. The scheme cannot boast of an impressive size and is one of the smallest in the HDFC basket with assets under management (AUM) of less than 60 crore. PERFORMANCE: Being passively managed and portfolio aligned to that of the benchmark, the performance of the index fund is expected to follow that of the benchmark and in this respect, it has not disappointed investors. Since its launch in July 2002, the fund has outperformed Sensex in overall returns by good margins.    While every 1,000 invested in HDFC Index Sensex Plus in July 2002 is worth 6,130 now, a similar amount invested in Sensex then wo...

Different types of Mutual Funds

You may not be comfortable investing in the stock market. It might not seem like your cup of tea. But you can start by investing in Mutual Funds. Many first-time investors invest in Mutual Funds. This is because they do not know how to invest in individual securities. Basic information on Mutual Funds People invest their money in stocks, bonds, and other securities through Mutual Funds. Each Fund has different schemes with specific objectives. Professional Fund Managers look after these schemes. Your Fund Manager could help you invest in a scheme that suits your financial goal. Functioning of Mutual Funds You could make money through Mutual Funds in different ways. A single Mutual Fund could hold many different stocks, bonds, and debentures. This minimizes the risk by spreading out your investment. You could earn dividends from stocks and interest from bonds. You could also earn capital by selling securities when their price increases. Usually, you could choose to sell your share any t...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now