Why are PSU stocks seeing a sudden buying interest?

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Why are PSU stocks seeing a sudden buying interest?
It's been an agonizingly long wait for those holding stocks of government owned companies or more popularly known a PSU stocks. These stocks have nosedived to ridiculous levels from the highs witnessed earlier in January.

PSU stocks like NMDC and BHEL, which are virtually debt free companies have been hammered mercilessly since the Middle of the year.

Now, these stocks along with those from the PSU banking space are looking up once again. In the last few days these stocks have fired up on hopes that there would be a Narendra Modi led BJP government at the centre. This they believe would lead to an uptake in the capex cycle which should benefit companies like Bharat Heavy which are largely capital goods and infra companies.

Along with the likes of BHEL, there is a new found interest in PSU banking stocks. Shares of Canara Bank, Oriental Bank, Bank of Baroda, Punjab National Bank and Union Bank of India have seen buying interest in the last one week or so.

Again, investors feel that economic growth would gain momentum with Narendra Modi as the Prime Minister, and this would result in non performing assets falling for government owned banks. Non performing assets have been one of the biggest concerns for the banking sector, particularly public sector banks.

Most of the PSU banking stocks have rallied anywhere between 20-30 per cent in the last few weeks. However, they still continue to languish way below their peak levels witnessed earlier this year. How far they will go is difficult to predict. Economic conditions have not improved as yet, though there are signs that the economy may have bottomed out.

Stocks from the sector are rallying largely on the basis of optimism. Whether this optimism is far-fetched is difficult to predict. We have to wait for the outcome of the general elections and before that counting for the state elections, which begins on Friday.

Until then, "make hay while the sun shines".

Story first published: Friday, December 6, 2013, 8:58 [IST]
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