Monday, June 14, 2010


SBI PSU Fund, an open ended equity fund, would invest in the stocks of Public Sector Undertakings, whose strong presence in high growth trajectory sectors viz; financial services, Oil & Gas, engineering and capital goods space offers you an opportunity to participate in these sectors and benefit over long term.

Investment Strategy of SBI PSUThe primary strategy of the scheme would be to invest in the stocks of the PSU companies. The scheme would endeavor to identify market opportunities and at the same time would sufficiently diversify its equity portfolio and control liquidity risks and non-systematic risks by selecting well researched stocks which have growth prospects on a long and mid-term basis in order to provide stability and possibility of returns in the scheme.

Investment in equities would be done through primary as well as secondary market, private placement / QIP, preferential/firm allotments or any other mode as may be prescribed/ available from time to time

Who should invest ?

■Investors interested in the long term value unlocking in PSUs.
■Investors looking for diversification in their portfolio.

Why should I invest in SBI PSU Fund?
PSUs are the wealth creators of the nation, with strong fundamentals and moreover they are available at attractive valuations compared to broader markets. There may arise several disinvestment opportunities too which shall lead to unlocking of value in these companies.

Wealth Creators
Out of the 30 companies which constitute the BSE Sensex, 4 companies with a combined weightage of 13.54 % are from the PSU space (BHEL, NTPC, ONGC, and SBI). As the graph shows, BSE PSU index outperforms the BSE Sensex index over the years by a substantial margin.
(Source: ICRA MFI explorer. Data as on 30th April 2010. Past performance may or may not be sustained in future).

Attractive valuations

As the table suggests, currently PSU companies are attractively placed in terms of valuations vis-à-vis the broader market indices and the BSE Sensex. BSE PSU Index is trading at relatively attractive trailing P/E multiple of 14.26 as against 17.16 P/E of Sensex companies, with better earning growth rate than the Sensex. Valuations as measured by P/B multiple also suggest that PSUs are better placed than the Sensex companies.
(Source: Bloomberg. Past performance may or may not be sustained in future)

Divestment Opportunity - Unlocking Value

The stage is being set for all listed companies to mandatorily have minimum public holding of at least 25%. Thus PSUs having stake above 75% will have to dilute their holding to that extent. Disinvestment is high on the government’s agenda to increase the threshold limit for non-promoter public shareholding for the private sector as well as public sector companies. PSU companies, other than the listed ones lined up for disinvestment could include Coal India, LIC India, BSNL, Nuclear Power Corporation etc. SBI PSU Fund would also identify investment opportunities in IPOs of these companies. Privatisation has brought out significant value unlocking and greater efficiencies in the past, which lead to re-rating of those companies and eventually leading to wealth creation.

(Source: Bloomberg Past performance may or may not be sustainable in future)

Resilient During Downturn

Historically, we can see that PSUs are less prone to downturns in the markets as compared to broader indices. When the market fell in 2008, the PSU index did not fall as much as the BSE Sensex.

(Source: Bloomberg; Data as on April 2010. Past performance may or may not be sustained in future)

strong Dividend Payouts

While the growth potential clearly exists, there is another aspect that adds to the need to look at PSU companies closely; that is they have a strong dividend payout history.

(Source:Prowess. Past performance may or may not be sustained in future)
Low Debt to Equity Ratio
PSU Companies have very less borrowing as compared to their private peers. They are also having better cash reserves, which makes their debt equity ratio lower, and more attractive for investors.
(Source:CMIE, IIFL. Data: As on 31st March, 2010 Past performance may or may not be sustained in future)

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