PSU Themed Mutual Funds Experience Significant Decline Over Six Months
PSU-themed mutual funds declined by 18.81 per cent in six months, impacted by market corrections.
An analysis of the performance of PSU (Public Sector Undertaking) themed mutual funds reveals an average decline of 18.81 per cent over the past six months. Six funds in this category have now completed six months in the market.
Top Performers and Underperformers
Quant PSU Fund saw the steepest drop, losing 23.15 per cent in the last six months, followed by CPSE ETF, which fell by 20.12 per cent. Invesco India PSU Equity Fund also experienced a decline of 19.41 per cent during the same period. Other notable funds, such as Aditya Birla Sun Life PSU Equity Fund, SBI PSU Fund, and ICICI Prudential PSU Equity Fund, posted negative returns of 18.75 per cent, 16.06 per cent, and 15.42 per cent, respectively.
Reasons Behind the Underperformance
Experts attribute the recent downturn to several factors, including market corrections, global economic uncertainty, and profit-taking after strong rallies across various sectors. Despite the short-term volatility, analysts suggest focusing on fundamentally strong PSUs with long-term growth potential, particularly those supported by government initiatives in infrastructure, energy, and defence.
Long-Term Performance Remains Strong
While the short-term performance has been disappointing, PSU funds have delivered impressive returns over longer periods. Over the past three years, these funds have provided an average return of 30.51 per cent, with some funds yielding up to 38 per cent. Similarly, the five-year average return stands at 26.16 per cent.
Impact of the Union Budget
The recent Union Budget had a mixed impact on PSU funds. While sectors like infrastructure, defense, and energy received policy support and increased allocations, others saw limited direct incentives. Higher spending on roads, railways, and power sectors is expected to benefit PSUs in engineering, construction, and capital goods. Defense manufacturers and renewable energy PSUs are also likely to gain from increased allocations.
However, the budget did not set aggressive disinvestment targets, and no major capital infusion was announced for PSU banks. Despite this, improved balance sheets and asset quality in PSU banks are expected to provide stability.
Key Takeaways for Investors
PSU funds are thematic investments that focus on government-owned companies, making them sensitive to policy changes and economic conditions. Investors should only consider these funds if they have a long investment horizon or a deep understanding of the sector to time their entry and exit effectively. Sectoral funds can go out of favour depending on economic cycles, so hasty decisions should be avoided during downturns.
Minocha concludes that while PSUs have been significant wealth creators in recent years, a selective and diversified investment approach is crucial. Investors should avoid overexposure to any single theme and aim for a balanced portfolio to achieve sustainable long-term returns.
Final Thoughts
PSU funds remain a viable option for investors seeking exposure to government-backed sectors, but careful stock selection and a long-term perspective are essential. By maintaining a diversified portfolio and focusing on quality PSUs, investors can navigate short-term volatility and capitalise on long-term growth opportunities.
Disclaimer: The article is for informational purposes only and not investment advice.