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Motilal Oswal Report
Strong earnings pickup with underlying return on equity expansion, healthy macros, policy tailwinds and an optimistic management outlook led to the sharp valuation expansion for public sector undertakings over the past few years.
The BSE PSU index that had seen a sharp de-rating in the first half of the previous decade, has subsequently experienced a sharp re-rating in the past three years.
The BSE PSU index experienced continued valuation expansion and is trading at 12.8 times 12-month forward P/E and 2x 12-month forward P/B as of June 2024, up 112% and 187% from FY20 lows, respectively.
Given the continued earnings momentum and guidance, we believe the valuation premiums for PSUs are expected to sustain in the near term. However, due to the multi-year high valuation and sharp run-up in select PSU stocks, earnings guidance versus delivery would be the key monitorable.
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