PSU Stocks: How The Raging Bull-run Will Play Out
The PSU stock rally is set to surprise the markets. The last time this happened was two decades ago in 2001. Then, the PSU stocks underwent a cycle where they were shunned by investors between 1990 up to 2000. During this time no one wanted to own PSU stocks. Their valuations fell to single digit P/E ratio and double-digit dividend yields. But after 2001, the value in PSU stocks was recognised and an accumulation pattern showed up. Then, the PSU index rose to touch a high of 11,205 from a low of 733. Again, the PSU stocks were shunned by the markets from 2008 up to 2020 and no one was really looking at them. But now there is value.
In 2020, the BSE PSU index touched a low of 4013, we are now at 11,563. There are no signs that the rally will stop here. Price history of the BSE PSU shows that we have broken out into new territory confirming the new bull market and if it is equal in size to the last one, which it can be, then we are heading towards 61,344. This implies another 5.3 times gain in the next five years, from where we are currently.
The new bull market in PSU stocks started in 2020. Prior to this, the last bull run we saw in the PSU stocks had a life span of seven long years, where the BSE PSU index went up by 15 times. This simply means that the new bull market for the PSU stocks, which started in 2020 could go on until 2027. In this period, if the index has to rise by 15 times from the October 2020 lows, then it still has a gain margin of 5.3 times from the current levels. The index has already doubled from the Covid lows hit in 2020.
Currently, the BSE PSU index is at a new high, based on the quarterly chart pattern seen since 2008, when the markets had crashed on the back of the great financial crisis. Usually, the PSU sector stocks undergo a 7-8 year period of consolidation when valuations drop to the floor. Then comes the 7-8 years of bull market, which starts with value buying and economic growth driven boom. We are currently at the cusp of this. Value buying PSU stocks had started in 2020 and the second phase is just about starting, which could last for the next four or five years.
The author is Founder and Market Strategist at Indiacharts.com
