PSUs dominate almost all core sectors of our economy. Financially, they are stable. In fact, from FY 2016-17 to 2017-18, the total income of Central Public Sector Enterprises increased from INR 18.2L crores to INR 20.3L crores, showing a growth of 11.61% 1 . The government has over the years, announced several reforms for the PSUs on its mission to achieve a USD 5 trillion economy.
Thus, PSUs have the potential to emerge as a worthwhile investment avenue in the years to come.
Introducing Aditya Birla Sun Life PSU Equity Fund - an open ended equity scheme following the PSU theme, intends to capitalise on the long-term potential of PSUs. This scheme will seek to:
Invest predominantly in PSUs or companies in which central/state government have at least 51% shareholding.
Focus on a portfolio of 30-35 stocks, with an intended 60-70% exposure to large caps and the balance to mid & small caps.
Have a well-diversified portfolio of PSUs including those in the Oil, Gas, Power, Mining, Financial Service, and Industrials sectors.
PSUs command monopoly like position in the core sectors like defence equipment, railways, oil & gas etc. The sheer scale, capital and expertise is immense for the core sector, making each of the PSUs, a behemoth in itself.
Most of the PSUs have a record of strong financials which allow them to pay periodic dividends. To put a figure, PSUs have paid out 27% of their market cap as dividends in the last 5 years 3. This puts the PSUs at a pivotal position when it comes to Dividend Yield. As depicted by the below graph, Nifty PSE Index has provided a better dividend yield as compared to Nifty 50 Index in the last 10years 3 .
The PSUs currently are undervalued in the markets. They are poised to go up in value and this can make PSU stocks a choice for investors who can stand to gain when the stocks begin to rise to realise their true intrinsic value.
Over the years, the Indian government has made a slew of reforms to give a boost to the performance of PSUs. These include reforms in the realm of fuel pricing, introduction of insolvency & bankruptcy code, recapitalisation of PSU banks etc. The continued commitment towards the furtherance of PSUs is likely to provide significant impetus to the growth of PSUs
A target of INR 1.05 lac crore has been set for ‘privatisation’ in the Budget 2019 4 . Divestment of PSUs has historically proven to bring better management and profitability which in turn unlock value and generate potential returns for all stake holders.
(An open ended equity scheme following PSU theme)