BSE PSU index off 52-week high, yet a few stocks can double your money

NEW DELHI: As the benchmark BSE PSU index has retreated about 5 per cent from its one-year high hit earlier this month, some analysts are looking at this basket keenly, as they believe some of state-run companies can generate high returns for investors over a longer time frame. Some of those stocks can even double investor wealth over time, they said.

Many of these analysts are actually quite bullish on PSU names such as NTPC, NBCC, Power Grid, Bank of Baroda and Coal India.

“A whole host of PSUs – NTPC, Power Grid and Coal India to name a few – are going to be bellwethers. PSUs that have been neglected so far will be outperformers. You can add NBCC and Engineers India, which have been two of our top picks since the last three years. They can double their values from here on as a strong expansion of the construction and hydrocarbon space is on the cards,” Sanjiv Bhasin of India Infoline said in a recent interview with ETNow.

Parag Thakkar, Head of Institutional Sales, HDFC Securities, said a PSU company supplying defence products has four years of order book. If the tension on the border is anything to go by, the government’s defence spend is likely to go up in the foreseeable future. That could be one stock to hold, Thakkar said without naming it.

He is also positive on the infrastructure space.

“NTPC remains a good buy. Shares of PowerGrid have already rallied significantly, making new highs every day, with certainty of profit and lower interest rate making its case stronger. So NTPC is one PSU stock I like the most,” Thakkar said.

Avinnash Gorakssakar, HoR, Moneylicious, is bullish on NBCC. This company continues to hold a Rs 71,000 crore order book, which gives very strong visibility to top line for the next three to four years.

“Apart from the order book, what is more interesting is the fact that the opportunity for growth is extremely high. We can see multiple opportunities for NBCC from the redevelopment of government colonies, smart cities as well as the housing-for-all initiatives. For a business that generates a return on equity of almost 25-28 per cent and return on capital employed of almost 30 per cent, this stock can definitely be re-rated significantly,” said Avinnash Gorakssakar, HoR, Moneylicious.

After seeing a sharp rise earlier this year, PSU banking stocks are cracking big time these days. They were a major driver of the BSE PSU index, which hit its 52-week high last week. Yet, Bank of Baroda is one stock that can generate good returns going ahead.

Bank of Baroda has reported a strong set of numbers for the September quarter. The bank delivered on all fronts and asset quality too improved. I think this kind of improvement would continue in the coming quarters. So I am bullish on this stock. The government’s demonetisation move is also hugely positive for the PSU banks. It would generate low-cost deposits, which would lead to an improvement in net interest margins for these banks,” said Vikas Sethi, MD, Sethi Finmart.

Rahul Singh, Managing Partner, Ampersand Investment Adviser, earlier this month said one does not look at PSUs as a pack.

“If we had done that, we would have missed the massive rerating in HPCL and BPCL. In the PSU metals space, there are some interesting value names. Even in the power sector, Power Trading Corporation looks reasonably priced. One would have to look at such opportunities where valuations are reasonable. We are seeing some near-term triggers by way of uptick in earnings,” Singh said.

The BSE PSU index hit a 52-week high of 8,077 on November 10.