Public Sector Undertaking (PSU) stocks surged in trade on Wednesday, February 14, after bullish commentary from foreign brokerages boosted investor sentiment. While Jefferies observed that the re-rating of the sector has more legs, JP Morgan raised target prices for oil marketing companies (OMCs), which ignited a fresh rally in that counter as well.
Amid concerns over weak earnings and stretched valuations, the Nifty PSE Index had fallen over 6% in two sessions through Monday. Reversing the trend, the gauge for state-owned stocks – Nifty PSE Index- outperformed the broader market with 3.3% gains on Wednesday. In comparison, the Nifty50 and Nifty Midcap gained 0.44% and 1.04%, respectively.
According to Jefferies, the latest outperformance of PSUs versus Nifty50 comes after a decade of underperformance prior to 2020. Yet, the PSU Index is trading at discounts to the benchmarks offering re-rating potential to average level. “Recent outperformance has been helped by EPS upgrades & RoE improvement. The index still trades at 40% discount to Nifty, which offers 15% rerating potential to average level,” wrote Jefferies in an investor note.
| Company | Today's gain (%) |
| MRPL | 11.6 |
| SJVN | 11.5 |
| BEML | 10 |
| HUDCO | 10 |
| MTNL | 9.9 |
| NALCO | 9.8 |
| HPCL | 8.3 |
| BPCL | 6.7 |
The stock of HPCL and BPCL surged the most on Nifty PSE index on Wednesday with each gaining 7% to 8.3%. According to JP Morgan, unless crude moves up further, or retail prices are meaningfully reduced there can be a continued upward bias to OMC stock prices. Against this backdrop, the brokerage increased its target EV/EBITDA multiple for each from 5x to 6x.
However, from the PSU backet, stocks like MRPL, SJVN, BEML, HUDCO, MTNL and NALCO gained anywhere between 10% to 12%. Shares of NALCO had plummeted nearly 13% in five sessions through Tuesday. Similarly, SJVN had lost 28% in previous three sessions. Additionally, better than expected earnings by NALCO for the third quarter of FY24 also weighed on investor sentiment.
(Edited by : Asmita Pant)
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