Here’s why Prashant Khemka struggles with PSU stocks despite attractive valuations

While PSU stocks may appear attractive on valuations and dividend opportunities, veteran investor Prashant Khemka said he remains cautious due to persistent governance issues, caused by misaligned interests with the government. “We have struggled historically to find attractive investment opportunities in the PSU space, not just in India, but across the world,” said Prashant Khemka, founder of White Oak Capital, in an interview with Moneycontrol.

Valuations of PSUs may look compelling on the surface, with higher dividend yield and low PE (price-to-earnings) multiples, Khemka said. “But the problem with PSUs in general is that alignment of interests is not there with shareholders,” he added, saying that this is seen across the world.

Also Read: Experts see no change in PSU fundamentals, despite sharp correction in stocks

Different governments may have different goals to achieve, such as in the name of social service or greater social cause. “Those aren’t necessarily the objectives of investors,” he said. He, therefore, considers PSUs to be strugglesome from the governance perspective.

Khemka’s White Oak has invested only a very small amount of money in PSU stocks across the world. “Our investment in PSUs remains restrictive to exceptional opportunities, purely because they are after all a large component of the market, which cannot be completely avoided.”

In several countries PSUs contribute nearly 30-40 percent of the market index. The emerging markets average is 20 percent, compared to 10 percent average of India.

One of the nifty sectoral indices includes the Nifty PSU bank index. This index has delivered a 34.37 percent return over the past six months and closed 4.23 percent higher at 4938.55 points on September 13.

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