“The upsets are coming from the underdogs and the underdogs are the PSUs so if that is going to be the trend globally, then why not underdogs in the Indian equity market as well? In the long-term portfolio, one typically keeps the nice high growth private sector companies. But there will always be some amount of trading portfolio and that is where some of these PSUs, smaller banks, smaller tech companies will come into play,” says Dipan Mehta, Director, Elixir Equities
You are an investor but investors also sometimes have trades which you identify for tactical purposes, a 15-20% move. What are the tactical ideas? Where do you think there is a potential mismatch and little bit of repricing in the next three to six months and 15-20% cannot be ruled out?
Across the board in one word, PSUs.
And across the board in the PSUs because defence PSUs are at all-time high, railway PSUs at all-time high, financials which are PSU banks are also at all-time high. Can this outperforming sector rise more?
Yes just because the stock is at all-time high does not mean it can go to another all-time high. PSUs have underperformed for 15-20 years or so and a lot of interest has come back into PSUs, these are stable economic times. Overall, apart from oil companies, we have not seen much interference coming through by the government in the way the PSU companies are being run. Some PSU companies, the new generation ones like have created tremendous value and there is always that nudging feeling that maybe if one of these companies are truly privatised, then it could be a trigger for the entire sector.
That is on the horizon. It can happen at any point of time but what goes in favour of PSUs is that these are stable economic times, we are in a cyclical upswing and businesses have good visibility as far as earnings are concerned. By and large, government policies have not been negative for minority shareholders of PSU companies and all that is taking place over here is the re-rating of the price to earnings multiple.
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Whenever you look at any of the cheap stocks in terms of PE multiple or price to book or dividend yields, the biggest category is the PSU and we are seeing a steady correction over there. There is a sense of disillusionment with the growth stocks, not just the new-age digital companies but also some of the other high-growth stocks that could be in building material, retail and other consumer businesses where the valuations are high and growth seems to be flagging or unsustainable. We are seeing smart money move into PSU stocks across the board and may find many winners over there.
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If it is going to be the season of underdogs, are these smaller banks going to continue giving better returns than an ? Is the elephant starting to dance?
The upsets are coming from the underdogs and the underdogs are the PSUs so if that is going to be the trend globally, then why not underdogs in the Indian equity market as well? One has to categorise in your mind and portfolio positions which you want to keep for 5, 10, 15, 20 years and over there you will typically keep the nice high growth private sector companies – be it banks, technology, automobiles, engineering, construction and FMCG.
But there will always be some amount of trading portfolio and that is where some of these PSUs, smaller banks, smaller tech companies will come into play because they have that phase of two-three years where they can grow really fast and they could deliver excellent earnings. Profits can go two-three times as well and stock prices also can go up two-three times in a short period of time.
We have seen those opportunities in the past and they will come from time to time as well. I sense that the next three-four years could be something like this where the smaller companies, the underdogs, the underperformers can play some amount of catch up but when this trend reverses and we get into a bear market, that is when the problem starts and one cannot really bet too heavily or have a portfolio which is too skewed in some of these smallcap companies which have not had a great track record. One needs to be a bit careful and use some amount of judgetment as to what proportion of your portfolio should be in these high risk, high return stocks.