Once-in-a-decade opportunity? PSU stocks on verge of 15-year breakout!

Stocks of state-run companies, which are often dismissed by investors as an epitome of inefficient management, are now taking revenge and how! After a long gap of nearly 15 years, Nifty PSE index is now within kissing distance of showing a breakout.

The PSU index, which comprises top 20 stocks with government ownership of at least 51%, had hit a closing high of 4,687 way back on 4th January 2008, just before the beginning of the crash induced by panic selling amid a global financial crisis. And now the index is just 5% away from hitting record high levels.


Chart readers predict that it is just a matter of time before the barometer zooms past the previous high to eventually come close to the 5,000 mark for the first time ever.

“On the upside, we expect the PSE index to initially target the psychological level of 5,000 and beyond that it has the potential to rise till 5,400,” said Jatin Gedia, Technical Research Analyst at Sharekhan by BNP Paribas.

This is the third time that the Nifty PSE index is approaching the 4,500 mark. On the last two occasions, the index failed to move further, and had to face more than 16% fall.

Technical analyst Milan Vaishnav said a breakout is impending but the index is facing resistance at current levels.

"However, the present up move is different in that it is replete with continuation patterns and the consolidation that has been underway all through this month in the vicinity of 4,500 suggests that the index is preparing for a sustained move higher towards 4,950. We are encouraged to play this move with a downside marker placed below 4,300," said Anand James, Chief Market Strategist at Geojit Financial Services.

Time to bet big on PSU stocks?
As the late ‘Big Bull’ Rakesh Jhunjhunwala had predicted, it has been tough for investors to ignore PSU stocks in 2022 as several of them, spread across industries in railways, banks and defence, have turned multibaggers.

Within the PSE index alone, defence PSU HAL has more than doubled while Nifty stock Coal India is up around 56%, followed by impressive gains in BEL, BHEL, NTPC and NHPC. Nifty PSU Bank index, among the top performers sectorally, has given a mindblowing return of over 70% year-to-date.


If you look at the valuations, many PSU stocks remain undervalued and also come with good dividend yields. Increased capex by the government and expectations related to the Budget is also fuelling the rally as investors look for fresh pockets while churning their portfolios.

PSU stocks also have a habit of going up in the run-up to the Lok Sabha elections.

“They are always at the last leg of the bigger rally in the market. They are always cheap and suddenly everyone will realise that everything else in the market is expensive and there is a potential in buying the cheapest sector,” points out veteran investor and trader Vivek Bajaj who runs StockEdge.

He said PSUs typically have a habit of going up very fast. At the same time, after the rally has gone up there is a potential of these stocks going down very fast because PSUs are symbolic of inefficient business management.

Bajaj recommends staying invested in PSUs but in moderation. “There are certain sectors that are very interesting where value unlocking possibility is higher, for example in defence,” he said.

(With data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)