PSU Stocks Soar Amid Market Rally: Here's How Mutual Fund Schemes Returns Have Reaped

Over the past 12 months, India's state-run stocks have witnessed an unprecedented rally, with at least 33 of the 100 listed Public Sector Undertaking (PSU) companies doubling in value. While individual stocks have seen gains ranging from 100% to a staggering 300%, the performance of PSU-oriented mutual fund schemes tells a different story.

Data from Value Research reveals that four PSU-oriented schemes managed by different fund houses - Aditya Birla Sun Life PSU Equity Fund, ICICI Prudential PSU Equity Fund, Invesco India PSU Equity Fund, and SBI PSU Fund - have delivered returns between 60% and 70% during the same period. Despite their robust asset base, ranging from Rs 700 crore to nearly Rs 2,000 crore, these funds seem to lag behind the impressive performance of individual PSU stocks.

One aspect is that all four schemes share the State Bank of India (SBI) as one of their top five holdings. Surprisingly, SBI, India's largest lender, has underperformed, registering only a 7% gain over the last year compared to the Nifty PSE index, which has surged by over 80%.

The common thread among the top five holdings of these four funds includes stalwarts like Coal India, NTPC, ONGC, and Power Grid. NTPC, for instance, has witnessed an impressive 90% rise in its shares over the past year, while Coal India approaches its all-time high, last seen in 2015, with a gain of over 70%.

The Invesco India PSU Equity Fund has diversified its portfolio by including Hindustan Aeronautics among its top five holdings with a 6.3% allocation. The state-run defence equipment manufacturer has seen a 130% surge in its shares over the past year, contributing to the fund's performance.

The SBI PSU Fund, on the other hand, has strategically included stocks like Hindustan Copper and BHEL among its top five holdings, both of which have recorded gains ranging between 100% and 200% during the past year. These stocks have played an important role in bolstering the fund's overall returns.

Surprisingly, despite the stellar performance of PFC (Power Finance Corporation) and REC (Rural Electrification Corporation) in 2023, with gains of 250% and 230% respectively on the Nifty PSE index, only one out of the four schemes has exposure to PFC, while two have exposure to REC. Strikingly, neither of these names features in the top 10 holdings of any of the schemes.

The intricate dynamics of the market raise questions about the performance of PSU-oriented mutual fund schemes compared to individual stocks. While the individual stock performances seem to paint a rosy picture, the funds' ability to leverage these opportunities and provide substantial returns remains a subject of scrutiny.

Investors are likely to evaluate the risk and reward factors associated with both individual stocks and mutual fund schemes before making their investment decisions in the PSU space. The disparity between the surge in individual stock values and the moderate returns from mutual funds prompts a closer examination of the strategies employed by fund managers in navigating the complex PSU landscape. As the market continues to evolve, investors will keenly watch whether mutual funds can catch up with the impressive gains witnessed by individual PSU stocks.