Of the 25 public sector undertakings (PSUs) that published their shareholding for the March quarter, 11 saw a decline in mutual fund holdings, while only three stocks saw an increase in stakes.
For instance, mutual fund holdings in SJVN declined from 4.25% in December 2023 to 1.54% in March 2024. The stock rallied nearly 33% during the quarter. Similarly, fund managers reduced their holdings in Punjab National Bank from 4.81% to 3.43% in the March quarter.
“The sharp rally in PSU stocks fuelled by a surge in government capital expenditure, strengthening government, PSU balance sheets, and an optimistic business outlook has raised concerns about inflated valuations and the anticipated slowdown in earnings growth for FY25,” said Vinod Nair, head of research at Geojit Financial Services. “As a result, mutual funds are adjusting their exposure to PSU stocks accordingly.”
The BSE PSU index rallied 96% in the last year and is currently trading at a 40% premium to the five-year average.Asset managers reduced their stakes in other state-owned companies like RITES, Hindustan Copper, Mishra Dhatu Nigam, BHEL, Bharat Electronics, and Life Insurance Corporation, among others.The earnings growth forecast is set to moderate in FY25 due to a high base and inflation, prompting control in valuation, according to Nair who advises being selective while investing in these companies.
