Investors could add PSU funds as a tactical play to their equity mutual fund portfolios, say fund managers. They believe low valuations, coupled with chances of a strategic sale or disinvestment in public sector units, could trigger a rerating for the sector.
“Valuations are cheap, most companies have good corporate governance, and possible disinvestment or strategic sale leaves room for value unlocking,” said Taher Badshah, chief investment officer, Invesco Mutual Fund. The government is in a strong position and there is better political will for disinvestment at this point of time, he said.
The S&P BSE PSU Index is trading at a price-earnings multiple of 10.11, and almost 20 per cent discount to its own 10-year average of 12.01, Badshah said. On price-to-book, it is trading at 0.81, compared with the 10-year average of 1.61.
In comparison, the broader S&P BSE Sensex index is trading at 22.68. The PSU index is trading at a 55 per cent discount to the latest Sensex level and a 38 per cent discount to the benchmark’s 10-year average.