EPFO maiden entry to equities fueling rally in the PSU stocks

Maiden entry of the Employee Provident Fund Organisation (EPFO) in the equity market from next Thursday has fueled the rally in Public Sector Enterprise (PSU) stocks. EPFO manages funds of employees from the organized sector which is worth about Rs 6 lakh crore. This is one of the reason that the stocks of Coal India, Engineers India, Oil India, GAIL, NBCC, Hindustan Copper witnessed a surge during Friday's trade. Experts believe that PSU stocks will be the first choice of the EPFO to test the flavour of equity market.

Under the new norms notified by the Labour ministry, EPFO will be investing their 5-15% of incremental flows into equities. EPFO is expected to receive funds of about Rs 1 lakh crore this fiscal year, this means they will be investing anywhere between Rs 5000 to Rs 15,000 crore in the equities. This year EPFO will step into the equity markets through the route of Exchange Traded Funds (ETF), it is likely to invest close to Rs 6000 crore in equities. To start with, a part of its fresh corpus will be invested in the ETFs issued by the SBI Mutual Fund, they will be investing on a daily basis. However, EPFO trustees are working on a plan for funds deployment which will depend upon the correction in markets. This means if markets fall by a certain percentage they can change their allocation accordingly.

Consequently, stocks in the bellwether indices are too lapped-up by the investors in expectation that they will be in demand once the EPFO buying kickstarts in the next few days.