Stocks of public units (PSUs) could be "surprising winners" in three to five years if the Modi government implements structural reforms in state-run companies like he did when he was Gujarat chief minister, according to a report released here today.
According to American brokerage Morgan Stanley, stocks of PSUs are about 30 per cent undervalued due to a slew of issues. Lack of autonomy and political interference in their functioning have been the biggest bane of PSUs.
Betting on state-run giants such as Coal India, PowerGrid, BPCL, NTPC and ONGC, Morgan Stanley said, "If the Modi government engineers change, as his performance with Gujarat enterprises points to, these stocks could be surprising winners in the coming three to five years".
The report noted that under Modi's tenure, the return on equity of key Gujarat state enterprises rose about 30 per cent points in ten years.
The report said that the big turnaround in the performance of Coal India and upstream energy companies is an indication that Modi's Gujarat model could be repeated with central government-run companies.
Noting that PSUs' earnings and revenues tend to be highly correlated with industrial growth, the brokerage said that "industrial growth is likely to accelerate in the coming months".
According to the report, PSU stocks underperformed the market by 55 per cent over the past decade.
Relative to the broader market, foreign investors' ownership of PSU stocks has nearly halved since 2007, the report said.
