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Mutual Funds Have Started To Reduced Stake In Major PSU Names

24 April 20244 mins read by Angel One
PSU stocks were the market favourites for a long time and because of that we saw a huge rally in them, the rally has muted down and we see many mutual funds cut down on PSU names.
Mutual Funds Have Started To Reduced Stake In Major PSU Names
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Public sector undertakings (PSUs) have been market favourites for the past year because of the government’s focus on them. However, recent trends indicate a shift in sentiment. Mutual funds, which have traditionally held significant stakes in PSU companies, are now offloading their positions. 

Market’s Hype of PSUs

PSU stocks were darlings of the Indian stock market. Investors favoured them for several reasons, PSUs are government-owned entities, which provide a sense of security to investors. The belief was that the government would step in to support these companies during tough economic times. PSUs operate in essential sectors such as energy, banking, and infrastructure. Their stable revenue streams and monopolistic positions made them attractive long-term investments and many PSUs consistently pay dividends, making them appealing to passive income-seeking investors.

Valuation Concerns and Muted Rally

In March, mutual funds reduced their exposure to PSUs. Let’s delve into the reasons behind this shift, the rally in PSU stocks over the years led to steep valuations. Investors began questioning whether these valuations were justified, especially considering the challenges faced by some PSUs. Some PSUs struggled with operational inefficiencies, mounting debt, and governance issues. As a result, their financial performance lagged behind private sector peers.

PSU Stocks Under Pressure

Mutual funds trimmed their holdings in PSU stocks, Elara Capital has told the mutual funds’ total investment in PSUs remains low, at around 12%, falling short of the desired range of 15-16%. Let’s take a closer look at the PSU stocks that observed the highest selling by mutual funds:

PSU Stocks Previous Holdings New Holding
NHPC  29 crore shares 26 crore shares (down 10.3% in holdings)
SBI 5.09 crore shares  4.94 crore shares (down 3% in holdings)
Union Bank of India 2.1 crore shares 2.05 crore shares (down 2.4% in holdings)
PNB 19.4 crore shares 17.6 crore shares (down 10.2% in holdings)
NMDC 5.3 crore shares 1.41 crore shares (down 276% in holdings)
IREDA 2.9 crore shares  1.3 crore shares (down 55% in holdings)
Indian Oil Corporation (IOC) 9.4 crore shares 8.6 crore shares (down 9.3% in holdings)
Power Finance Corporation 25.2 crore shares 24.4 crore shares (down 3.2% in holdings)
Bank of India 1.7 crore shares  1.63 crore shares (down 4% in holdings)

Conclusions: The era of blind faith in PSU stocks seems to be fading. Mutual funds’ actions reflect a more discerning approach, where valuations and performance matter. As investors reevaluate their portfolios, PSU companies must address their challenges to regain market favour.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.

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