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Mutual fund schemes investing in shares of public sector undertakings (PSUs) have fallen out of favour with investors. The assets under management (AUM) of six such funds have dropped about 28 per cent in a year to June 30 as declines in these shares have squeezed returns.
Total AUMs of the six PSU funds stood at Rs 589 crore as on June 30, compared with Rs 823 crore on the same day a year ago, according to data sourced from mutual fund tracker Value Research.
Average returns from this fund category have contracted 24 per cent, compared with a 21 per cent decline in the CNX PSE index. The BSE Sensex has risen by about 4.9 per cent, while the NSE Nifty has risen 1.7 per cent.
Fund managers said public sector companies underperformed partly because of the government’s share sale programme to meet its divestment target.
“These stocks got beaten down due to the share-sale offers when stocks were offered at a discount to their market price,” said Navneet Munot, chief investment officer at SBI Mutual Fund.
Fund analysts said it was the high exposure to some large-cap and mid-cap PSU stocks that led to the decline in the returns of these funds.
Four of the six PSU funds have high exposure to the energy sector with more than half of the corpus invested in stocks of this sector. Financial sector stocks are the second largest category of stocks in these funds with an average exposure of 23.3 per cent per fund. Two of the six funds in this sector are exchange-traded funds tracking PSU bank stocks.
Stocks like State Bank of India (SBI), Oil and Natural Gas Corp (ONGC), Coal India and NTPC are among the top holdings in these funds. Among these, Coal India has seen the highest decline in the last one-year period, falling by 38 per cent. NTPC has registered the second highest fall at 24 per cent, followed by SBI at 20 per cent and ONGC at eight per cent,
“Investor interest in these stocks has been lacklustre. There have heavy redemptions from these funds as returns have turned negative,” said Hiren Dhakan, associate fund manager with Bonanza Portfolio Services.
However, fund managers said valuations at this point are cheap and could turn out to be good buys from a long-term perspective. Changes in policy reform measures like increase in fuel price hikes could see an improvement in stocks of the oil and gas sectors. Banking stocks, on the other hand, would continue to see more pain, analysts said.
“Till the broad economic scenario does not turn around, the pressure on the asset quality of these banks will continue. There is no point in running after cheap valuations,” said Kaushik Dani, head of equity at Peerless Mutual Fund.
