In this, five stocks are multibaggers viz. National Aluminium Company (NALCO), Housing & Urban Development Corporation(HUDCO), Mazagon Dock Shipbuilders, NBCC India and Bharat Electronics (BEL) between 185% and 104%.
Others including Bank Of Maharashtra (BOM), Canara Bank, Central Bank Of India, Coal India, Hindustan Copper, Indian Overseas Bank (IOB), NMDC, State Bank of India (SBI) and Cochin Shipyard between 20% and 68%.
All the 14 stocks had hit their 52 week lows in November 2023.
Q2FY25 Review
While NALCO tops the chart with highest July-September net profit growth of 415%, Coal India trumps its peers on topline growth at 730% on an year-on-year basis.The next highest growth in profit after tax (PAT) has been recorded by Coal India (88%) followed by Mazagon Dock (80%) and Hindustan Copper. HUDCO and the Central Bank posted profit growth in excess of 50%.The rest posted a growth between 45% and 11%.As for the revenue, 51% growth was recorded by Mazagon while the rest were in the range of 11%-36%.
Only those stocks have been selected whose PAT, revenue and returns from 52 week lows are in double digit or triple digits.
Election Impact
PSU stocks have been at the receiving end of investors’ ire following the outcome in the general elections on June 4, where the Bharatiya Janata Party (BJP) failed to get a simple majority on its own.
Out of the aforementioned 14 stocks, 9 witnessed corrections of up to 19% between June 4 and November 22 (a day prior to Maharashtra election results). The maximum fall was seen in IOB, followed by BOM, Central Bank and Hindustan Copper.
In this, five stocks have managed to remain positive despite weak market sentiments and a profit booking trend among the majority of PSU stocks in the BSE PSU index. Bharat Electronics, Mazagon Dock, NALCO, PFC and SBI have given returns between 62% and 5% in this period.
Also Read: BJP’s Maharashtra win puts spotlight on PSU stocks; will momentum sustain till Budget 2025?
Following an emphatic Maharashtra assembly win, PSU stocks have once again come into focus and may remain in the spotlight in the run-up to the Union Budget 2025, due for announcement on February 1.
Vikas Gupta, smallcase Manager and CEO at OmniScience Capital attributed the real reason for PSU stock’s lackluster show of past 3-4 months to overvaluation in a lot of PSUs along with negative sentiments due to the general elections outcome. However, with positive outcomes in Haryana and Maharashtra, sentiments have improved, Gupta said even as he conceded that negative sentiment so far implied that the future revenue and cash flow growth could be slower than thought earlier.
He sees a long term story in the counters of state-run companies and emphasizes on the need to focus on fundamentals and valuations.
On earnings, Gupta is of the view that sectors like defence and railways are project oriented where quarterly earnings, or even yearly earnings, are not important. “They have lumpy earnings which are very low in some years and very high in others. This is due to the project completion cycles. Over years, the projects get delivered or reach a significant milestone and then revenues and earnings are booked,” he said.
What to buy?
For Gupta, banks offer a “meaningful” proposition given “significant undervaluations” in them. “For us such high earnings growth combined with low valuations is the biggest takeaway. The banks are likely to have even higher growth rates in the next few years. Overall credit growth is likely to remain in high teens during this time and earnings could accelerate beyond that due to lending capacity utilisation resulting in higher RoEs,” this analyst said.
For Centrum Broking’s Nilesh Jain, the preferred bets are BEL, NALCO, Mazagon Dock and SBI. The Head Vice President, Equity Research Technical and Derivatives sees BEL poised for a target of Rs 310/320 with support at Rs 280. BEL formed a strong base near 270 levels and reclaimed its 100-DMA at 295 levels, he added.
NALCO is another stock in an uptrend and it still looks positive for 270+ levels with support at Rs 230. It can be added on declines with a stop loss near support. For Mazagon, the target is Rs 4,800 and support lying at Rs 3,850.
Among banks, he recommends SBI looks for targets of Rs 875-900 levels with support at Rs 805.
Kranthi Bathini, Director-Equity Strategy at WealthMills Securities sees stock specific action in the PSU bank and selects SBI, Bank of Baroda (BoB), Mazagon Dock, Garden Reach Shipbuilders and HAL as top buys.
(Data Inputs from Ritesh Presswala)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
