In the initial months of this year, the performance of public sector companies (PSUs) has shown promise. Notably, the Nifty PSU Index reached its peak on August 1st. However, the subsequent months have brought a downturn. In August, the Nifty PSU Index fell by 1.7%, and September has seen a further 5% decline, marking the worst performance of the year for this index.
Despite this recent downturn, Gautam Shah from Goldilocks Premium Research remains optimistic about the long-term prospects for PSU stocks. He predicts that further declines might occur before conditions normalize. Currently, the PSE Index is about 10% below its peak, and PSU bank stocks have experienced significant selling pressure, with the index down approximately 20% from its peak on June 3rd just a day before the Lok Sabha election results were announced.
The last instance of consecutive monthly declines in the Nifty PSU Index occurred in May and June 2022. Shah mentioned in an interview with CNBC-TV18 that the momentum for PSU stocks has been weak in recent months. The performance of PSU stocks is not aligning with the Nifty Index, and ratio charts confirm this trend. The previous outperformance of PSU stocks seems to have dissipated.
Notably, there has been a sharper correction in PSU stocks compared to the related index, with many shares experiencing a 10% to 15% decline from their peaks. Companies like Mazagon Dock, Cochin Shipyard, and Garden Reach have seen their stocks fall nearly 40% from their highs in early July. Despite this loss of momentum, Shah is confident in the long-term potential of PSU stocks, although he anticipates that some additional decline might still be possible.
In summary, while PSU stocks have recently struggled, their long-term prospects remain positive for those who can manage short-term volatility.
