Investors chase PSU midcaps in hope of EPFO money flow

Investors lapped up shares of mid-sized public sector companies on Thursday amid expectations they would be part of the portfolios of equity schemes handling Employee Provident Fund (EPFO) money.

STC India, NBCC, Hindustan Copper, MMTC, MTNL, GAIL and SCI surged between 5% and 20%, and their trading volumes were around 2-23 times more than their 10-day averages.

According to the government’s directive, EPFO can now invest 5-15% of its incremental corpus in equity markets starting July. EPFO will initially start with 1% of the incremental corpus, which will increase to 5% by March next year. This means EPFO can invest Rs 4,000-5,000 crore in equities this fiscal year.

Investors are hoping that the EPFO money may first find its way to PSUs because of government ownership.

The government’s plan to sell shares of its companies through the exchange traded funds (ETF) route has also sparked interest in PSU stocks.

“Govt could do divestment by forming an ETF in which 70% of stocks could be those that are performing well and 30% that are yet perform well. This could make it easier for the government to divest, and this can get a fair response for EPFO.

These govt ETFs may give equity IRR of 12-14%, which is quite attractive for EPFO fund manager,” said Prakash Diwan of Altamount capital management.