Prashant Jain defends PSU picks, says consumption sector extremely expensive

Jain also mounted a defence of investing in public sector enterprises. “PSUs have not always underperformed. BSE PSU Index Sensex were the same from 2000 to 2016. In the last 2-3 years, PSUs have sharply underperformed. The profit growth of PSUs 2016-20 was higher than the broad market,” he said. According to Jain disinvestment of government holdings through ETFs adversely impacted the valuations of PSUs. “The good news is that the Department of Investment Public Asset Management (DIPAM) has said that the government is unlikely to resort to ETFs going forward,” he added. According to Jain, the finding a strategic buyer places a greater value on the PSU stocks. “Second, there are no PSUs in FMCG, pharma, auto software. Most PSUs are banks, metals, power utilities oil gas most of these sectors were underperforming. It is not fair to say PSUs have been perpetual wealth destroyers,” he added. According to Jain, PSUs retain strong advantages in certains sectors. “In oil gas power, the casualty rate has been higher in the private sector. In all fairness, the best companies in India will be from the private sector but in some areas which are very capital intensive where infrastructure incumbency is very high areas where people have to deposit money public ownership gives advantage, PSUs have a role to play, he said.

Jain also highlighted why some of his picks in the power sector as well as those benefiting from capital spending will outperform going ahead. “Our funds have come back quite strongly but we have some way to go before we can say that we are back up. We are positioned in sectors where the earnings growth will be ahead of the markets. Private capex will come back quite sharply the fund is overweight in the capital spending space in private banks. The last 8-10 years India has not invested in any thermal power plants. Solar power is unlikely to replace thermal power in a big way. The power demcurve is such that demfor power peaks in the morning evening. Unless storage improves dramatically, thermal will remain competitive. In the foreseeable future at least in countries like India, we will continue to need thermal power,” he added. According to Jain, after 1992 when the markets were trading at a multiple of 40 times, Indian markets have never been really expensive.