Dalal Street Investment Journal|November 25 - December 8, 2019
The markets seem to be in no mood to reward investors who are unable to read the present trend accurately. Actually, they broadly never do. Understanding market trends has always been crucial when it comes to creating sustainable and consistent wealth from the markets. Experienced investors who have been active in the market for long will tend to conclude that markets move in themes. Different themes and sectors outperform in different market conditions.
It becomes essential that the underlying themes are ‘well understood’, and most importantly, ‘grasped timely’ by the investors to outperform market returns. PSU stocks as a theme seem to be promising currently in a seemingly wobbly broader market scenario. The recent rally in PSU stocks is heartening for investors as these stocks as a group has been disappointing investors for quite a long time. The below table highlights the underperformance of the NSE PSE index vis a vis the Nifty over the past one year.
The underperformance of the PSU stocks goes far beyond the past one-year period. The past 5-year returns of the S&P BSE PSU TRI index are flat, ie a meagre 0.07 per cent on an annualised basis. The returns over the past 3-year period (annualised) have been actually negative (-0.32 per cent)/flat while over the past one-year period, the index has generated a 4.94 per cent return. The Sensex returns over these time frames have been far superior. If one were to take the mutual fund route to PSU stocks, the performance still is not impressive. The below table highlights the relative performance of the SBI PSU Fund, the Sensex, and the S&P BSE PSU Index, which clearly reflects the stark underperformance of the fund to the indices over the past 3 and 5 year time frames.
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November 25 - December 8, 2019