The index has lost 18 per cent from June 2014, when the Narendra Modi government took office. The index had positive figures during the previous three governments.
Operative from February 1, 1999, it returned a gain of around 150 per cent when the Vajpayee-led NDA completed its term in office. Under Manmohan Singh’s prime ministership in the first term of the United Progressive Alliance (UPA) in 2004–2009, it rose a little over 180 per cent.
From then, the index has been a laggard, though still positive, during the UPA-II rule (2009-14). The gain, however, shrunk to about two per cent. At the current level of 7,093 points, it is back to where it was in 2012.
Experts point to multiple factors, including the constant news of divestment and follow-on public offers. More importantly, it is largely constituted by companies in the oil & gas, power, infrastructure and banking sectors, all under pressure for a while. State Bank of India (SBI), Oil and Natural Gas Corporation (ONGC), Indian Oil Corporation (IOC), Power Finance Corporation, NMDC and GAIL are some of the heavyweights in the index. Their earnings have remained under pressure for 12 to 18 quarters. Banking and infrastructure sectors have lately shown signs of improvement but there’s a long way to go before regaining investor confidence.
Excess capacities built in the power, metals and mining industries, and bad loan-related stress for banking, do not seem to be going away in the immediate future. Also, with private players having capitalised on the weak pockets of their public sector peers, competition has significantly risen in the past three years. “PSUs continue to see their competitive advantage eroding,” MOSL mentions in its note. At oil and gas companies, production bottlenecks and volatile crude oil prices dampen investor sentiments for stocks such as ONGC, IOC and Bharat Petroleum.
“Investors have to be stock-specific with PSU stocks,” says G Chokkalingam, managing director, Equinomics Research. “I don’t find value in at least two-third of the stocks, due to industry-related problems.”
However, experts say not all PSUs are alike in this. “Only those PSUs are creating wealth which face minimal competition from the private sector,” MOSL states in its report. These retain their relevance for investors. GAIL, Power Grid Corporation, SBI, LIC Housing, Bharat Electronics, Cochin Shipyard, Petronet LNG and NBCC have a near-monopoly or are market leaders in their domain. Their stocks continue to appeal to investors, including those abroad, for their size and scale of operations.
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