Do PSU funds offer a value buy opportunity post recent slide?

The Government of India’s divestment programme is witnessing good traction so far, one of the reasons behind this is the usage of the Exchange traded funds (ETF) or offloading stakes. Through these PSU schemes around 10,000 crore or more money is invested into PSU stocks.

With such a huge investment in PSU stocks, these schemes have been hampered more due to the current slide in PSU stocks. Many investment experts see this slide as a temporary event and expect these stocks to get revived in the longer run.

In the last three months, benchmark index Nifty has remained flat, however, mutual fund schemes focused on PSU stocks have fallen around 3-10 per cent roughly. Below-mentioned are the schemes which invest predominantly in PSU funds.

Energy companies and banks form the major components of PSU undertakings in India. Currently, these stocks are impacted due to the perceived fear of subsidy sharing and rising crude oil prices. At the same time, PSU banks are undergoing a transition due to NPA recognition cycle. Owing to these reasons, the energy and PSU bank stocks are witnessing a major downfall.

The current volatility in the market and the commodity prices would not last for a longer time. Experts see an increasing possibility of improvement in the macroeconomic environment. Moreover, policy measures in terms of NCLT and IBC are expected to revive the PSU banking stocks.

With the current downfall, the valuation of the PSU stocks seems to be more attractive. So many investors are seeing a buying opportunity in these stocks as well as funds which constitute these stocks. But investors should remember that the situation would not change overnight, it will take time with the short-term sell-offs. So investors who are invested into these funds should wait if they can digest the current and upcoming volatility as we see the upcoming election in the year 2019 as a trigger to the sector. However, for investors who are looking to enter, this can be a value buy strategy as the PSU sector consists of many blue-chip stocks which are undervalued currently and are able to perform in the longer run, say 10 years.