Analysing valuations: A closer look at PSU sector performance
In the capital goods basket, BHEL, following a recent rally, now trades at approximately 50 times the current year's price-to-earnings. Similar patterns are observed with HAL, RITES, BEL, and Bharat Dynamics—all defence-related stocks—being significantly above their five-year averages, causing discomfort regarding their valuations.
Over the past year, the PSU index has shown remarkable performance, registering an impressive 81% increase. The collective market capitalisation of PSU companies has seen a substantial surge, reaching nearly 22 lakh crore. This journey in the PSU sector has been noteworthy, but concerns have arisen regarding valuations in many instances.
On about railway stocks, the interest rates hover around 11–13%. However, when examining the rally and considering valuation perspectives, IRCTC stands out, trading at 55 times the current year's price-to-earnings ratio.
While IRCTC has consistently been a high-priced stock, other railway companies like IRCON, currently at 18 times, RVNL at 32 times, and RailTel at 35 times on FY24 price-to-earnings, also exhibit significant valuations.
Shifting the focus to the capital goods basket, BHEL, following a recent rally, now trades at approximately 50 times the current year's price-to-earnings. Similar patterns are observed with HAL, RITES, BEL, and Bharat Dynamics—all defence-related stocks—being significantly above their five-year averages, causing discomfort regarding their valuations.
Even in the realm of power finances, while IRFC has garnered attention, its valuation remains the highest among financiers, exceeding four times the price-to-book ratio. This surpasses the valuations of private banks in the current market scenario.
PFC and REC, historically trading around half-time book value, are now nearing two times book value, further contributing to unease in terms of valuation.
However, amidst these concerns, the only semblance of comfort within the PSU basket lies with PSU bank stocks. Despite the recent rally, these stocks continue to trade at relatively fair valuations.
SBI, for instance, presently trades at 1.4 times the price-to-book ratio, historically aligning with its range of 1.3-1.4. Other PSU banks like Canara Bank, Union Bank, and PNB are also hovering around one-time price-to-book, historically situated between 0.5-1-time books.
Thus, in the PSU banking sector, even after the rally, stocks maintain a relatively balanced valuation compared to other PSU segments.
Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
Kannauj Lok Sabha elections: Can ex-UP CM Akhilesh Yadav reclaim this erstwhile SP bastion?
May 12, 2024 11:32 PM
Khunti Lok Sabha Elections 2024: Arjun Munda and Kali Charan to lock horns in this clash of tribal leaders
May 12, 2024 8:59 PM
Malkajgiri Lok Sabha election: A three-way contest among turncoats
May 12, 2024 8:45 PM