“PSU companies form an important constituent of Capital Markets and are present across different sectors presenting wide investment opportunities. Also, PSUs appear to be attractively placed on valuation basis and offer better margin of safety. In a volatile environment, companies providing high dividend yield tend to have higher demand resulting in capital appreciation,” Chintan Haria, Head – Product Development and Strategy, ICICI Prudential AMC.
According to the fund house, many factors make the PSU space attractive: One, government ownership in PSU companies is substantial compared to non-promoters (FPIs, DIIs & Retail). As these companies are highly under owned by non-promoters, the PSU space provides better Margin of Safety. Two, valuations in the PSU space have been attractive for a while now again indicating that companies have better Margin of Safety. Three, PSUs tend to offer better dividend yield than broader markets. Average dividend yield of S&P BSE PSU Index (last 17 years) is 2.6 whereas that of S&P BSE Sensex is 1.3. In a volatile environment, companies providing high dividend yield tend to have higher demand resulting in capital appreciation.