>PSU PICKS (MICROSEC)

Market performance in the last six months has been stupendous across the globe, India not being an exception. However, the recent run up has baffled most of the investors and putting fresh money into stocks is being considered a risky affair, unless one is ready to invest at higher valuations on stocks selected on bottom up approach.

However, some of the Public Sector Undertaking companies, or the PSU’s are not only likely to outperform the key indices during the period of the stable government, they are also likely to act as a cushion to protect portfolios from sharp volatilities in times of uncertainties. The latest initiatives undertaken by the stable Indian government towards PSU disinvestment and focused approach in
infrastructure developments such as roads, ports, airports, railways and the hydrocarbon sector are likely to benefit companies in the PSU arena. In addition, valuations of the companies mentioned below remain attractive despite the recent run up in the market. Investment in these companies with an 18 months time horizon is likely to deliver return between 36-42 percent. The basis of selection is expected good earnings visibility, high ROE, high cash reserves, and investments.

The following return charts between SENSEX and BSEPSU Index reflects an interesting trend. During the previous coalition government, SENSEX outperformed the BSEPSU Index throughout the 5 year period as shown in exhibit II.

During the current stable government, BSEPSU Index has outperformed SENSEX during the last five months as shown in exhibit I. The trend is likely to gain further momentum as the current government is expected to focus on an improved performance of the PSU companies.

• Container Corporation of India Ltd
• Engineers India Ltd
• Balmer Lawrie & Company
• Bharat Electronics Ltd
• BEML Ltd
• GMDC Ltd
• REC Ltd
• Indian Bank

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