“PSUs underperformance was very stark in the last couple of years and that was not backed by the financial performance, in the last 5 years the profit growth of PSUs was more than broader markets,” said Prashant Jain, Chief Investment Officer and ED of HDFC AMC.
In an exclusive interaction with ET NOW and speaking on the special occasion of the channel’s 12th anniversary Jain said, the underperformance in the PSUs was possibly the result of ETFs which the Government has hinted they are unlikely to adopt (ETFs) as a divestment tool. The focus of the Government has now shifted to the strategic sale so he believes the real value of these PSU companies will be seen now as the overhang of ETFs is not there and to that extent, the environment has turned positive for the PSUs.
Jain said, if you look in the Indian context bulk of the PSUs are in banks, oil and gas, energy, coal, mining and in the power sectors and these sectors were also underperforming, now even the sectoral outlook has changed, profit performance is also supportive of these businesses going forward.
Jain believes that deep undervaluation in PSUs is partly corrected but still, there is a significant room in many of these sectors as current valuations are significantly below the long term averages. In some cases, the dividend yield in quite a few of these companies meaningfully exceeds borrowing costs and hence their room to be optimistic.
The corporate NPA cycle is clearly behind us banks asset mix has converged (between various banks) in terms of retail and corporate books and going forward the big divide in valuations that we saw over the last couple of years for banks may not sustain, said Jain.
Speaking about the markets, Jain said that last year saw the highest ever growth in Nifty EPS and it was broad-based, core sectors of the economy are doing well, corporate profits have revived and this makes a strong case for a significant revival in private capex. Markets in aggregate terms are fairly valued, markets are now at a 90% m-cap to GDP ratio, this is just about right (neither too expensive nor too cheap) as in the current low cost of capital one can work with a slightly higher valuation multiples. The outlook for profit growth in India is positive & broad-based. The next few years returns will be a function of inflation and returns across sectors can vary significantly.
