PSU Shares - Gold Mine or Black Hole ?

Dear Investors,

The recent rally in BSE and NSE has given a big boost to the most neglected sector - Public Sector Undertakings.  

BSE PSU Index comprises of 59 scrips out of which 24  belong to Nationalized Banks.  Rest 35 shares belong to core business / manufacturing activities.  Many stocks in this sector are under owned by both FIIs and Domestic Institutions, HNIs for the simple reason that these are thoroughly mis-managed.

The Sector is out of investment radar of large investors due to uncertainty. There are several reasons for the downturn in PSU stocks include decline in net profit and the government's move to sell shares of some of these companies via offer for sale, at a discount to prevailing market price.  Any further equity dilution means - more supply depressing the market price.  FPOs by the government has become a nightmare for the Retail investors as they are now trading at deep discount to their issue price.  

For the smart investors this gives a golden opportunity to buy into high quality stocks at attractive valuations.  The top ten identified by our Research Team is given below :

1. BHEL
2. BPCL
3. BEML
4. Coal India
5. Engineers India
6. GAIL
7. Hindustan Copper
8. Indian Oil
9. NMDC
10. ONGC

Investors should carefully analyze the price movements of these shares besides the Q4 results for 2014 before taking any investment decisions.

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Smart Investor

Equity Research Division

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Avoid BPCL, HPCL, IOC - Subsidizing Diesel, Cooking Gas

Our Bureau

Mumbai, Dec 28

It's a script that has gone completely haywire. Six months ago, when the Centre announced deregulation of petrol and Rs 2 a litre hike in diesel, oil companies rejoiced.

Today, diesel losses alone are projected at Rs 20,000 crore between October and end-March 2011. Cooking gas and kerosene make up the balance Rs 14,000 crore.

The trio - IndianOil, Hindustan Petroleum Corporation and Bharat Petroleum Corporation - are losing over Rs 6 a litre on diesel, while cooking gas losses are estimated to touch Rs 400 a cylinder in a week.

The bigger problem is diesel whose consumption is on the rise. According to the market grapevine, the Centre is contemplating a hike of Rs 2 a litre but this will only part-alleviate the problem. By the end of the fiscal, the three refiners would be waiting for a compensation package and end up absorbing a large portion themselves.

All this does not augur well, especially when these companies are looking at investments of over Rs 60,000 crore each over the next decade. These will go towards new projects and replace the existing creaky infrastructure. This money, in turn, can only be generated once complete fuel price deregulation becomes a reality.

Logically, cars and sport-utility vehicles need to pay the actual price of diesel while trucks and non-automotive users in farms and mines need the subsidy.

Dual pricing is, however, easier said than done because it will only spawn corruption at the retail end.

Source : BusinessLIne.in