Earlier this month, the CPSE ETF, Goldman Sachs' special fund designed to help the government disinvest its holdings in PSUs, collected Rs 3,000 crore of investments during it's launch. It's a remarkable number, given everything we know about the desirability of PSUs as an investment. Of course, it was helped along by a five per cent discount on the stocks, as well as a promise of a bonus one year down the line.
Even then, despite the bulk of these investments coming from institutions, as much as Rs 800 crore came from individual investors. This is a remarkable number, give that in all of the six years since the financial crisis, the net investments of retail investors in equities or equity funds has hardly turned positive. Why such enthusiasm for public sector stocks? I think the simple answer is they have somehow become the flavour of the day, with the general expectation that there will be a change of government and somehow there will be a miraculous improvement in the investability of PSUs, and helped along with talk of the discount and the bonus.
This flavour of the day investing has long been the bane of the Indian retail investor. Even after the financial crisis, it's only such investments that have caught people's eye. An earlier example was Reliance Mutual Fund's Diversified Power Sector fund. In 2010, when investors somehow decided that power was the flavour of the day, the fund saw massive inflows only to see the entire power dream come crashing down soon.
The main problem is not with PSUs or the power sector (although those are real enough), the problem is with how little traction the principle of diversification has with investors. For retail investors, the very fact that a particular sector or theme seems attractive--or someone is trying hard to make it look attractive--should be a warning signal. If something looks better than the rest today, then it's very likely to actually do worse soon. Paradoxically, aiming for that average may just give you the only chance for beating it.
Ask Value Research 
New episodes every Friday 
New Process Alert 
Seems like you've uploaded a wrong QR code. Please upload the QR code downloaded from MF Central platform.
