Indian equities have had a brilliant run over the past year, with the benchmark indices touching new highs. There are a few themes, however, that have delivered higher returns than the bellwether indices, for instance, stocks of public sector undertakings. The S&P BSE PSU Index has gained nearly 16 per cent over a one-year time frame, even as S&P BSE Sensex clocked gains a little less than 13 per cent.
While the PSU Index has clearly delivered returns higher than the broad market, this has had a positive rub-off on mutual fund schemes that invest in State-owned companies.
The two PSU-themed equity mutual fund schemes, Invesco India PSU Equity Fund and SBI PSU Fund, have delivered returns in excess of 23 per cent and 27 per cent — beating their benchmark -- the S&P BSE PSU Index -- by a wide margin over the past year.
SBI PSU Fund, which delivered a tepid performance a year back, has made a comeback in the past year. While SBI PSU managed to race ahead of Invesco India on a one-year returns basis, it still lags the latter over a three and a five-year horizon.
What helped SBI PSU Fund’s outperformance over the last 12 months?
In terms of sector shifts, increasing exposure to PSU refineries, oil and gas companies and players in the housing finance space aided performance.
SBI PSU Fund’s top bets in the oil and gas space such as HPCL, Mahanagar Gas, Indraprastha Gas and IOCL, paid off. Other stock picks such as BEML, Bharat Electronics and National Aluminium Company boosted returns. Likewise, paring its holding in select underperforming PSU banks such as Bank of Baroda and Punjab National Bank also helped the scheme’s performance.
Invesco India PSU Fund’s marginal underperformance over the past year was largely on account of its select bets in the financials space. Repco Home Finance was one of them, though the scheme has reduced exposure to the stock over the last 12 months — from 2.83 per cent in August 2016 to 1.67 per cent in August 2017.
Missed opportunityInterestingly, while SBI PSU Fund reduced exposure to Bank of Baroda, Invesco was a buyer in that stock whose underperformance over the last several months has also impacted the scheme’s performance.
Invesco India did not fully capitalise on the opportunity in select stocks such as fertiliser maker GSFC, refining major HPCL and MRPL on account of early exit.
However, select new stock additions to the portfolio such as Can Fin Homes, Maha Nagar Gas and IOC did help performance.
While SBI PSU has been marginally ahead of Invesco India PSU over a one-year period, the latter still scores over SBI PSU in terms of long-term performance and consistency.
Over the last five years, Invesco India PSU’s daily one-year return has been higher than the benchmark nearly 90 per cent of the time; SBI’s consistency score is a tad lower at 80 per cent.