Kotak Institutional Equities (Kotak IE) sheds light on the recent rally in Public Sector Undertaking (PSU) stocks, attributing it to top-down bullish sentiment rather than fundamental developments. Despite this rally, no PSU stock has yielded negative returns, indicating a broad-based uptrend in the sector.
However, Kotak IE points out several concerning aspects associated with the PSU rally. They highlight bullish short-term profitability and volume assumptions, along with questionable valuation methodologies and unrealistic narratives driving investor sentiment.
In the fiscal year 2024, many PSU stocks have witnessed remarkable returns, with some posting over 200% gains. Notably, companies like FACT, Mazagon Dock, MRPL, SJVN, and IRFC have shown outsized returns despite low float and high promoter holdings.
Kotak IE advises investors to trade cautiously and utilize the rally as an opportunity to exit positions, especially considering that most non-financial PSU stocks are trading at inflated valuations. They emphasize that the rally is occurring despite weak fundamentals, unsustainable business models, and a growing risk of existential irrelevance for some companies.
