India’s largest money manager ends love affair with PSU stocks

NEW DELHI: Shares of public sector companies, though among the cheapest stable names available on Dalal Street, are like double-edged swords. They provide superior dividends and peace of mind, but share prices rarely rally in tandem with expectations. And, sometimes, they may eat into your wealth.

In the current phase, when the market is directionless, this trend may be more stark. Not surprisingly, SBI Mutual Fund, the biggest public money manager, is now selling those PSU stocks that it had accumulated over the last one year.

The buy-sell data for June showed SBI MF sold 2.75 crore shares of oil explorer Oil & Natural Gas Corporation, 1.56 crore shares of SAIL and over 57 lakh shares of Bharat Electronics.


The fund house also dumped 10-50 lakh shares of Vodafone Idea, HPCL, Zee Entertainment Enterprises, Cholamandalam Investment and Finance, ITC, Cummins India, Emami, Motherson Sumi Systems, DLF, Ambuja Cements, Firstsource Solutions and Housing & Urban Development Corporation. BPCL, IndianOil and NMDC are the other PSU stocks that featured in this list.

When reached out, SBI Mutual Fund didn’t immediately reply to queries on this selloff.


Some of these buying and selling could be due to changes in the composition of benchmarks that are tracked by passive funds.

Some analysts believe it is better to stay away from PSU stocks now, especially since better businesses are available in the same sectors.

“We have a choice in many sectors, where you have PSU names plus some very robust private sector names. Yes, there is a valuation difference, and obviously, the PSU sector does offer very cheap valuation, but clearly the way the businesses are run is rather different. For some time, we have kept away from the PSU space and I am not sure I have seen enough yet to entice me back,” said Jonathan Schiessl, an emerging market expert, who was earlier with IIFL.

However, SBI MF has not shunned all PSU names. It is still bought select names from the power sector, as India broke all records of electricity consumption this calendar.

Fund managers bought 3.14 crore shares of NHPC and nearly 62 lakh shares of PowerGrid. It also added Bank of Baroda and Concor, two of the government’s disinvestment candidates.

Besides, it bought 20 lakh to 1 crore shares of Crompton Greaves Consumer Electricals, V-Guard Industries, Tata Steel, TVS Motor, UPL, Muthoot Finance, Ashok Leyland, Equitas Holdings and Axis Bank.

“Yet at a time when our in-house equity market sentiment measure suggests overheated condition, which to us has been a key tactical risk, taper fears can potentially bring about volatility. This could be especially pronounced in pockets with speculative excesses,” SBI MF said in a recent note.

“We would, however, recommend using any correction to add good quality pro-cyclical assets and stocks to position for the next several years of likely uptick in economic activity and corporate earnings in India,” it said.

Meanwhile, the fund house took fresh positions in Avanti Feeds, Brigade Enterprises, Dodla Dairy, India Pesticides, Indian Bank, KNR Constructions, Manappuram Finance and Sona BLW Precision Forgings. Three of them are last month’s debutants.

At the same time, the fund house exited Barbeque-Nation Hospitality and JSW Energy.

SBI Mutual Fund is the top fund house in India with assets under management (AUM) at Rs 5.24 lakh crore, widening the gap against the rest. ICICI Pru AMC stands at the second spot with an AUM at Rs 4.29 lakh crore and HDFC AMC third with Rs 4.18 lakh crore.