Caveat: Personally I do not like PSU shares at all. However I do have some in my portfolio – simply because I cannot get companies in certain businesses, and of a certain size in the private sector. So the shares that I have / had in my portfolio are Ntpc, Hpcl, Bpcl, Sbi, Nhpc, Bhel – mostly trading positions. However those that are there in my portfolio give me a fantastic yield – thanks to the low price (thanks to time), and high dividend payouts (bankrupt government forcing high payout). So take this article with that knowledge base.

Most PSU shares have galloped in the past few weeks, and some have done very well in the past 1 year.

Does this mean that the run up is over and you should stay away? OR

Is this the beginning of a bull run and it can go up many times more from here?

Well both these are very difficult to answer!

Let us look at Hpcl, Bpcl, Ntpc, Bhel, and Coal India.

If you take a 20 year view on all these shares, your answer will be very different from a guy who has been a trader and has been watching only in the past 6 months.

20 years ago the price of Hpcl was Rs. 294, in August 2013 it was Rs. 163, now it is Rs. 403.

Figures for Bpcl was 113, in Sep 2013 it was 278 and now it is Rs. 650. Sure for now it looks high, but if you take a 20 year view, the growth is not necessarily great is it?

If you take BHEL the story is not very different. In Nov 2007 it was Rs. 538, six months ago it was 161 (you have been ripped apart if you bought it at the peak of the boom), and is now at 257.

Coal India – terrible under performance over 5 years, but suddenly it has spurted. Ditto story for almost all energy and bank PSUs.

What has suddenly happened? well hope that Narendra Modi will kick ass and make these sleepy Kumbhakarnas perform. I am completely in agreement with the thought.

I have seen the amount of interference from the Ministry in various PSUs, the amount of idle Real Estate that they have, the luxurious offices, guest houses, the amount of corruption, the over staffing – very low hanging fruits for sure.

So I do expect Na Mo to crack whip and DRAMATICALLY improve performance. I do not expect the changes to be small time, but real kick ass performance is possible. The Tata Power share (Re. 1) is at Rs. 105, there is no reason that NTPC should not be at Rs. 1000 (sure we need many changes) (Caveat I have both TP and Ntpc in my portfolio).

What can happen? Take a simple example. Na Mo could get SUTI to sell L&T, Axis bank, ITC and raise say Rs. 50,000 crores. Use that cash to create a PSU Company’s REIT. Hpcl, Bpcl, Sbi, Ongc could sell their RE worth about Rs. 50k crore to this Reit. They could use the cash to pay off the more expensive loans.

The Reit could sell off some RE and use that cash to repeat that process with another set of PSUs. Then the Reit could raise money from the public…

Frankly I do not think there is any shortage of ideas. This article is to just say that 1. DO NOT GET CARRIED AWAY BY THE RECENT spurt in Psu share prices.
2. PSU shares could outperform many other shares, but one has to be selective for sure.
3. With a little honesty, and a driven market oriented top management, the PE ratios could change, and the change will be dramatic.
4. A dramatic change in the EPS, selling off of the non core unproductive assets, and a change in PE could be a dramatic and virtuous cycle of goodness.
5. I have met some very honest, brilliant managers in the PSUs. If they are empowered, hey it could be great.

HOWEVER:

1. All these PSUs require cash, so they could dilute their capital base.
2. GoI could create more ETFs (Goldman has a small PSU ETF) and dilute its holding.
3. GoI could place equity directly with FIIs or come out with many FPOs.
4. The whole process could take time.

So read the whole article, go to many free websites (or paid ones like Bloomberg or Reuters or CMIE) and do your own analysis. Then decide on what to buy.

Do not go by what I have said is there in my portfolio. My positions could change on an hourly basis. The companies that I chose are / were there in my portfolio.

Do remember this is an unedited site, I may/may not have vested interest in the shares mentioned. By the time you read this article I may have IOC, Bank of Baroda, Union Bank and puts in Bank of Baroda.