In the dynamic landscape of the stock market, PSU stocks have been a topic of discussion lately. In a recent interview on CNBC TV18, Nilesh Shah from Envision Capital and Dharmesh Mehta of Dam Capital Advisors shared insights into the challenging valuations of PSU stocks. This article delves into the key points discussed during the interview, providing a detailed analysis of the current scenario and potential future trends.
Adani Enterprise, Reliance, and LT Performance:
The discussion began with a brief overview of Adani Enterprises’ recent financial results. The company reported a significant surge in net profit, more than doubling to 1800 CR. The positive performance contributed to a notable rise in the stock’s value. Meanwhile, other major players like Reliance Industries experienced buying momentum, while L&T faced challenges, becoming the top Nifty loser.
Concerns Surrounding PAYTM:
The conversation then shifted to the regulatory challenges faced by Paytm. According to Shah, the series of bad news for PAYTM has been ongoing for over a year. The recent developments, particularly regarding payments banks, pose a significant challenge that might persist for some time. Shah expressed skepticism about the stock’s potential growth, indicating a potential further decline in its value.
PSU Stocks Valuations:
Dharmesh Mehta from Dam Capital Advisors joined the discussion, highlighting the challenging valuations of PSU stocks. Shah echoed this sentiment, stating that PSU stocks, excluding PSU banks, appear over-stretched. The recent budget had a positive impact on PSU banks, but Shah emphasized the need for caution due to the rich valuations of other PSU stocks.
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Risks and Opportunities:
Shah acknowledged the potential structural changes in PSU stocks, anticipating them to become more significant enterprises in the next 5 to 10 years. However, he also emphasized the need for a cool-off in their valuations. While not advocating a severe sell-off, Shah suggested waiting for more favorable entry points.
Post-Election Divestment:
The conversation explored the impact of divestment post-elections on PSU stocks. Shah expressed optimism, stating that divestment is no longer perceived negatively. Instead, it is seen as an opportunity for institutional investors to deploy fresh liquidity. The divestment strategy has changed from being a capital-raising exercise to a positive narrative, potentially leading to higher weights in market indices.
Private Sector Capex and Economic Growth:
Shah discussed the shift in infrastructure investment dynamics. Previously, the government played a crucial role in anchoring investments. Now, with infrastructure becoming an attractive sector, private capital is expected to play a more significant role. Shah suggested that the government is passing the baton to the private sector, encouraging them to invest in infrastructure projects.
Outlook on Private Capex:
Regarding private capital expenditure (capex), Shah acknowledged that it has not yet picked up substantially. Despite the reduction in tax rates for manufacturing companies, private capex is lagging. Shah remains optimistic, foreseeing a potential increase in private sector capex in the coming months.
Conclusion:
In conclusion, the interview highlighted the challenges and opportunities in the current market scenario, specifically focusing on PSU stocks. Investors are urged to exercise caution due to stretched valuations while keeping an eye on potential structural changes and the evolving narrative around divestment. The interplay between public and private sector investments will be crucial in shaping the future landscape of the stock market.