ABSL’s PSU fund has delivered a staggering 100% return over the last year, riding the huge PSU rally to the hilt. Early bets in PSU banks, defence, railways and power sectors drove performance considerably.
Dhaval believes that while railways and defence stocks have perhaps peaked for the time being, the story continues to look strong going forward for PSU banks and power stocks. Oil and gas stocks also now look very attractive.
Agile rotation within PSU sectors should continue to drive performance says Dhaval, even as he cautions that investors’ returns expectations should be tempered down to 13-15% p.a. from here on.
Dhaval believes there is merit in staying invested even after this huge run up as RoEs are now back up to the 13-14% levels seen 15years ago and earnings outlook continues to be strong. PSU banks and power stocks continue to have strong runways for at least another couple of years. Execution will be key going forward, and therefore stock selection will be crucial to harness future gains from PSUs.
With markets expecting return to power in the coming elections for the current Government, expectations are getting built on a focus on completing its long pending reforms – one of which has been PSU privatization. This could be an icing on the cake for investors as there can be considerable value unlocking – should this happen.
Investors coming into PSU funds now should factor in an event risk of election outcome and should have reasonable return expectations –in line with earnings growth, from here on.