PSE sector is trading at nearly all time low valuations. The valuation statistics are mouth watering. In comparison to BSE Sensex, the BSE PSE sector index is trading at current valuations as below:
The difference in valuation between Sensex / Nifty50 vs PSE is surprising. The corporate earning in PSE index has been at par with NSE Nifty50 for last 10 years. But the stock price performance has been totally disconnected from the fundamentals. In the graphs given below, you may discover the disconnect by yourself.
Graph 1: Earning Per Share of NSE Nifty 50 & NSE PSE Sector Index are same
(EPS growth of NIFTY PSE may be slightly more volatile in comparison to Nifty 50, it has kept good pace with the broader index)
Graph 2: NSE PSE Sector index is under performing Nifty 50
(The under performance by NSE PSE is actually an ignorance of investors, but it opens up an opportunity to buy this sector at a very attractive price)
The stock market is going through a transition. As it happens with every crash, the future themes will change and new leaders shall emerge. Investors start to migrate from over owned and over valued stocks, to under owned and undervalued stocks. PSU sector is one of the likely favorites for this migration.
Every portfolio should allocate around 10% to 15% in PSU Funds to generate alpha over next 1-3 years.