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How To Play The PSU Theme

You don't need to invest in thematic funds to get exposure to PSU stocks, your diversified fund would suffice...


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Fund houses do know how to capitalise on the latest theme in the market. Right now the public sector undertaking (PSU) one has gained traction. This far, three fund houses have launched focussed PSU schemes: Religare PSU Equity, Sundaram BNP Paribas PSU Opportunities and the latest is SBI PSU.

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Apart from this, we also have banking sector ETFs that track the CNX PSU Bank index which includes PSU banking stocks.

However, PSU funds are not new. UTI Master Growth was the first of its kind launched way back in 1993, after disinvestment of PSUs first started mid 1991. The fund's objective changed and it was re-launched as UTI Top 100. The latter invests primarily in Top 100 companies by market capitalisation.

All these newly launched schemes will invest in PSUs that they believe are likely to emerge as more robust and vibrant players in different industries of the economy. Hopefully the disinvestment process will continue as envisaged. The finance minister hinted at PSU disinvestment in the Budget last year. The government aims to raise Rs 40,000 crore through disinvestment in FY11. Two IPOs came out last year (NTPC, OIL India), two in 2010 (United Bank of India, SJVN) while NTPC, REC and NMDC have come out with follow-on-offers.

However, investors must realise that any fund manager can buy into a PSU stock if he sees potential. There's no stopping a regular equity diversified fund from investing in a stock. Currently, there are 96 PSUs listed on BSE, out of which 53 have an allocation of less than 1 per cent in the overall portfolios of mutual funds. And 37 stocks have not been considered by funds.

The IPO saga
Many of the funds that invested in 2009's big PSU IPOs have since offloaded these stocks. NHPC came out with its Initial Public Offering (IPO) in August 2009. That month 68 schemes invested in the stock, which is now down to 23 (May 2010). The actual invested amount during this period increased due to a price rise, from Rs 230 crore to Rs 246 crore.

OIL India came with its IPO in September 2009 with 83 funds investing in it Rs 506 crore. Again, the amount invested has risen to Rs 817 crore while the numbers of funds invested in it has come down to 37.

More recently, United Bank of India came out with its IPO in February 2010 and by March, 14 funds had invested Rs 25 crore. The amount has risen to Rs 33 crore, though the number of funds has come down to 9.

The latest PSU stock to come out with an IPO is Satluj Jal Vidyut Nigam (SJVN). It did so in May 2010 and 9 funds invested Rs 90 crore in the stock.



 
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