NewsStocksState-Run Stocks Extend Outperformance as Investors Await Budget Disinvestment SignalsState-Run Stocks Extend Outperformance as Investors Await Budget Disinvestment Signals
Indian state-owned companies continue outperforming broader markets as investors await February 1 budget disinvestment signals. The BSE PSU index shows consecutive monthly outperformance against the Sensex while trading at attractive 11x forward earnings, roughly half the benchmark valuation. Key performers include Coal India (up 4.00%) and NTPC (up 3.00%), with state banks leading through market share gains and improved balance sheets.
*this image is generated using AI for illustrative purposes only.
Indian state-owned companies are extending their market outperformance as investors anticipate potential disinvestment signals from the February 1 budget. Market participants expect Prime Minister Narendra Modi's administration may accelerate share sales in the fiscal year starting April 1 to offset revenue growth slowdowns following earlier tax cuts.
Market Performance Comparison
State-run stocks have demonstrated resilience compared to broader market indices this year. The performance differential highlights the sector's relative strength amid market volatility.
| Index Performance: | Current Status |
|---|---|
| Key PSU Gauges: | Steady performance |
| Benchmark Decline: | Down 3.40% |
| BSE PSU vs Sensex: | Back-to-back monthly outperformance |
| Last Similar Performance: | Mid-May 2024 |
Sumeet Rohra, fund manager at Smartsun Capital in Singapore, noted that PSU stocks are extending outperformance as investors expect disinvestments to increase. The budget represents an opportunity for the government to provide clarity on strategic sales.
Recent Market Movements
Prior to Tuesday's global selloff, key gauges tracking state-owned firms had risen between 2.00% and 5.00%. However, the NSE Nifty 50 Index fell 1.40% on Tuesday, marking the biggest drop since May.
Individual state-run companies have shown positive momentum:
- Coal India Ltd: Up 4.00% this year
- NTPC Ltd: Gained approximately 3.00%
- State-owned banks: Leading the broader benchmark through market share expansion and balance sheet improvements
Valuation Attractiveness
State-run firms are trading at compelling valuations compared to the broader market. The sector's discount to asset prices, particularly in oil and gas, presents opportunities for investors.
| Valuation Metrics: | Details |
|---|---|
| BSE PSU Index P/E: | 11x one-year forward earnings |
| Sensex Comparison: | Roughly half the valuation |
| Profit Contribution: | One-third of India's profits |
| Sector Focus: | Commodities, defense, infrastructure |
Deven Choksey, managing director at DRChoksey FinServ, explained that stocks are rising as traders expect government announcements regarding monetization and consolidation roadmaps for state-owned firms.
Investment Outlook and Considerations
Many state-run companies dominate their respective industries, operating in sectors where sentiment has improved on expectations of higher government spending. The commodities, defense, and infrastructure sectors have particularly benefited from this positive outlook.
However, any renewed disinvestment push is likely to be gradual rather than comprehensive. Past privatization efforts have encountered political and execution challenges, and gains could diminish if the February 1 budget fails to outline clear timelines for stake sales.
Arjun Divecha, senior advisor for Grantham Mayo Van Otterloo & Co., expressed support for disinvestment, noting that companies perform better when serving a single master rather than multiple stakeholders. Current optimism over asset sales is supporting state stocks on expectations of improved governance through strategic investor induction and enhanced capital payout policies.
15
