PSU stocks expected to trade sideways for next six months: Digant Haria

"I think people will wait and watch. They will consolidate. So, I think last Monday, the exit poll day, whatever levels you saw should be the top for PSUs for the next six months and on Tuesday whatever lows that we saw on the result day I think that should be the floor and most of them will move in the trading band of Monday and Tuesday so to say," says Digant Haria, GreenEdge Wealth.

I guess the markets would be very pleased, the top four cabinet ministries stay put and clearly a messaging of continuity and I think that is something that the market would be liking.
I think this Tuesday is far better than what last Tuesday was. Last Tuesday, we were all scared. We did not know what is going to happen. Compared to the verdict that we saw last Tuesday I think the cabinet and the bargaining with the allies I think everything is falling in place. So, I think the worry is less but because we are at elevated levels and because this entire PSU pack and the defence, infrastructure all these things were so overheated that I think they will still need three to six months of sideways movement or consolidation so to say despite the stable government.

And let us not forget that in December we have a crucial state election, which is Maharashtra and I think till then the government will be more focused on politics than on economics. So, I just think that next six months is slight bit of pause in this three-year bull market that we have witnessed.

But other than that would you say then be a little cautious around PSUs, even though they have recovered, most of them massively from the Tuesday lows, but would you say that is where the valuations are getting a little ripe, you cannot take the blanket call that you could perhaps two years back, now you got to be more stock selective?
Absolutely, you summarised it that you need to be stock selective. The narrative that all PSUs will do well that narrative is broken for now. Fundamentals I think still remain very much intact whether it is for metals, mining, the oil and gas or the PSU banks I think the earnings will still come in a way that we were all expecting.

But I think the narrative and the euphoria is gone and because they are over owned I think we will go sideways and then there are very-very specific events, like the SBI, the top leadership at SBI is about to change in the next three months.

So, I think people will wait and watch. They will consolidate. So, I think last Monday, the exit poll day, whatever levels you saw should be the top for PSUs for the next six months and on Tuesday whatever lows that we saw on the result day I think that should be the floor and most of them will move in the trading band of Monday and Tuesday so to say.

But yes, you can have some specific outperformance. For example, see metals and mining, they are global sectors. So, if aluminium, manganese, iron ore prices globally do well, I think there is no reason why PSUs in that particular pocket cannot do well. So, I think we have to be very stock specific and metals and mining is one area where we will still progress despite the political mandate that we saw on last Tuesday.

The first announcement after Prime Minister Modi taking oath has been the three crore houses in the pipeline that he has talked about. The Pradhan Mantri Awas Yojana under NDA 3.0 now. What kind of investment fillip does it give? And do you think the best way to play this is going to be via microfinance because I think it is obvious that the government is going to now have a more sort of populist ahead of the state elections like you were as well highlighting kind of tone and maybe some more freebies would be doled out?
We do not have the view that this government will go into a lot of freebies because if freebies was the only thing, then BJP should not have won Odisha and then Jagan should not have lost Andhra Pradesh or Chandrababu Naidu should not have been able to win Andhra Pradesh because the maximum freebies were given in that state and minimum freebies were given in Odisha which is even poorer state than Uttar Pradesh in terms of per capita.

So, I just think that they will continue with whatever plans they had before the election. I do not see that they will spend in a very big way in populist measures. But I think we are looking for a good monsoon and because all these rural and non-affluent consumption stocks these have been subdued for the last two-three years, so maybe next six months there could be a bit of a bounce.

But I do not really see a very big sustainable trend emerging here and specifically to your question on affordable housing, I think these companies, these Aavas and Aptus and Aadhar and India Shelter these private equity backed companies, they do tend to benefit a little bit but I think the valuations there are pretty rich and they are growing at 20-25% despite that Awas Yojana not being so strong.

So, I do not think housing finance or microfinance is a great way to play that. Microfinance, we are entering a bad cycle for the next year, so microfinance will continue to struggle in this year. I think the bigger beneficiary should be these cement companies or the roofing solution companies, the ones which help in building those houses, maybe the steel companies, because a lot of demand comes from there. So, I think there is no such need that the spending from the government is going to be excessive in the rural sector.


What your outlook is on some of those IT names. Yesterday was a day where a lot of some of the largecap majors buckled under a bit of pressure. What does this indicate? Was it just a sort of a flash in the pan move or some sort of undercurrent for the rest of the year?
I think this is that flash in the pan move because on Tuesday we all thought that political outcome is uncertain, let us go to FMCG and IT which is a defensive pack, so I think that part of the trade is probably getting unwound.
Having said that, see, the valuations are pretty reasonable. But until the US and Europe, the two big contributors to the revenue for these largecap IT names, until these economies really recover I do not see a very big reason for this sector to re-rate so to say because there is a threat, how is this sector going to cope up with AI, how is this sector going to cope up with slowing demand from US and Europe?

There are a couple of headwinds and on the other side the valuations are good. So, they will see some periodic pop and then they go sideways. But broadly, nothing happens. It is only if somebody is very scared, you stay in these companies, you earn some dividends, and maybe you earn that 10-12% kind of returns.

As of now, I do not see any major change. I think November is when the US goes for elections and after November we can take a fresh call on this sector as to how the direction of US economy goes, so that is our view. We are not very excited about this space. We think that private banks can do a little better compared to the largecap IT space.



What did you buy on Tuesday’s fall? What did you buy that day?
Tuesday's fall, we were just trying to see if we are overexposed to this PSU, cap goods, infra, all the hot sectors and I think we trimmed a little bit of exposure to PSUs and we got a little more specific. We bought into NALCO and MOIL which are the PSU companies which actually are into mining and the price of their say output is dependent on global front and not really what happens in domestic.

So, we continue to remain bullish on these two. Then, Muthoot Finance, again it is dependent on gold price, gold price depends on what happens globally, not necessarily what happens in India. So, I think these two or three segments which are actually dependent on the metal prices or the commodity prices that is where we are bullish and that is the only call we took on that day. And thankfully, we did not take very aggressive calls of selling or anything because the market rallied very significantly in the next three days.

This is so strange, right? I mean, on last Monday if you fully invested, you said, okay, thank God, I am fully invested, markets are up. On Tuesday, if you had cash, you said, thank God, I was sitting on cash. Wednesday, you said, oh, thank you, I was not sitting on cash because markets have rallied, right? What is happening? It is crazy, is not it?
Yes, it was a rollercoaster ride and yes, I think in such times you have to give it a week or a month. You have to listen to the markets also that okay I think this will happen or that will happen. But yes, we have to listen to the markets.
We are reasonably invested, but we are also watching if those old themes they will continue, they will not.
The India story is still very much alive. It is just that next three-six months we all need to digest the fact that this Amrit Kaal is not going to see the political stability which we were all expecting before the last Tuesday.



So, how soon before markets will start talking about long term, budget because today budget is not part of the narrative.
We have seen a very good rally from the Ukraine-Russia war lows of say July 22 or August 22 and it has been like a one-way Street and whatever we saw in the last four days we have to thank the Indian retail investor that they helped the entire market absorb what FIIs did in the last four or five or six days.

So, the setup in India remains very strong. It is just that we are at an elevated level. There is still a bit of euphoria when it comes to valuations in smallcaps, the microcaps, and to some extent in the defence and the railway stocks.
So, some of it has to cool down. Maybe another three-six months things cool off and probably after the US election and after the three state elections in November and December, we will start talking again about the India story and the big outlook and all those things. But next four-five months we all need to be a little more selective in what we do in the markets.