When it comes to investing in PSU stocks, the challenge lies in what source to believe as the stock being worthy or investments or best stay out of. I have come across stock market analysts who would be at the extreme end of the bias, with very few taking a balanced view when investing in PSUs. For many years, in the latter half of 1990s I blindly believed that investing in PSUs was like throwing good money after bad investments. I was influenced by the better prospects of investing several new companies that were listed and the emerging technology sector which witnessed some heady growth in that period.
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It took me some time to kill my bias, and of course after burning my fingers with some rather poor investments in them and otherwise that I started to view PSU stocks differently. At least I stopped having a random approach to buying these stocks in the hope of policy changes which would result in the company’s fortunes turning around miraculously. I also had luck running on my side when a few bold disinvestment decisions in the early part of the 2000s, resulted in my investments paying off handsomely.
Dig deeper for value
If one goes back in time, almost every budget since 1992 has in some form paid lip service to disinvestment. Some have earmarked figures towards this effort, which were rarely ever met. Such moves did play its share of bringing in investor interest into these companies and stocks. But, it was some time before it all actually materialised into gains for investors, leaving many investors holding to illiquid PSU stocks in their portfolios. The change in oil sector policies has favoured investments in them, but the same is not true of the telecom stocks – BSNL and MTNL.
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Most PSU balance sheets hide a lot more than is visible. They under utilise their assets, are over staffed and lack clarity at the top management because of government influence (not interference). Most often, the management would be working towards pleasing the government with dividends than work towards growing the business. But, what investors should admire with PSUs is their undivided focus in their line of business. It is impossible to think of a PSU oil company jump the internet wagon or get into the retail business as a Reliance Industries would.
Such predictability in business is much desired of and should be accounted for as value. With change in times, PSUs are being run by more focused and aggressive managements that are clear in their roles of working towards the benefit of every shareholder and not just the government. This shift in their way of running businesses can be best understood if one looks at the quantum of investments by mutual funds in PSUs. Not to forget the few PSU focused funds that exist and the CPSE ETF which has done well not only for the government but also investors in the ETF.
So, should the intelligent investor put his money into PSU stocks? Taking a cue from intelligent speculators, one could certainly buy into these stocks selectively and not be blinded by the parentage. Moreover, times have changed and one should not base their investments only on favourable policy changes. If not sure, no harm in putting money into mutual funds that invest in PSUs, they are run by professional fund managers, whose job is to profits. For the uninitiated investor, this could be their first investment as they would feel at home with the comfort of putting their money in government run companies, which are bound not to fail.
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