Iron & Steel, Housing Finance, and PSU Banks among most undervalued PSU sectors: Value Stocks

A recent study conducted by Value Stocks, a smallcase manager, provides insight into the valuation of Public Sector Undertaking (PSU) stocks. The research firm analyzed 91 PSU stocks listed on the National Stock Exchange (NSE), categorizing them into 26 subgroups. The findings reveal that only five sub-groups are overvalued, five are fairly valued, while a significant 16 sub-groups are undervalued, indicating strong investment opportunities in the PSU sector.

The report highlights specific undervalued sectors, including Iron & Steel, Housing Finance, and PSU Banks, indicating a favorable market position for investors. These sectors are currently available at attractive corrections from their recent highs, making them appealing options for those seeking value.

In addition to Iron & Steel and Housing Finance, the study notes that Public Sector Banks have improved their standing, with diminished concerns over governance, technology, and credit costs. As a result, they are now viewed as competitive with private banks in terms of valuation.Shailesh Saraf, smallcase manager and founder of Value Stocks, commented on the outlook for PSU banks: “We remain strong believers in PSU banks, which are much better positioned compared to their private peers in terms of valuation. The Nifty PSU Bank index is trading at a PE of 8.5, while the Nifty Private Bank Index is at 15.5 PE. We are confident about PSU stocks due to government support for infrastructure projects, energy transition, and banking sector reforms. These stocks are currently available at good corrections and should be considered promising investment opportunities.”The study identifies five subgroups with overvalued valuations, including Coal, Financial Institutions, Logistics Solution Providers, Power – Transmission, and Tour and Travel Related Services.

he report also emphasizes that sectors such as Defence, Railways, and Shipbuilding are available at significant corrections from their recent highs, presenting lucrative investment opportunities. These sectors have demonstrated strong sales and profit growth, making them attractive options for investors at current prices.

For instance, Bharat Electronics and Hindustan Aeronautics boast robust order books, with over Rs 76,000 crore and Rs 94,000 crore, respectively. The report indicates that these companies are well-positioned for future growth.

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