7 Hidden Risks in PSU Stocks | Case Studies on IEX, Coal India, Bharat Electronics, BHEL etc.

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In this video, we delve into the world of public sector companies in India and uncover the hidden risks involved in investing in them. On the face of it, PSU investing is commonly perceived as less risky given the implicit guarantee of government support, attractive PE ratios, and generous dividends. But it's also true that the Nifty PSE Index has underperformed the broader market and more than half the companies within this index have share price returns lower than the standard inflation rate.
There are 7 risks I have highlighted in this video:
1. A change in policy and this is exemplified by the situation with the Indian Energy Exchange Limited (IEX)
2. A sudden change in formula by the government which can significantly impact the valuation and profitability of companies as it happened with LIC (positively) and Bharat Electronics Limited (negatively)
3. Risks associated with unlisted companies within the PSU as was the case with Ramagundam Fertilisers and Chemicals Limited (RFCL) and Engineers India Limited (EIL)
4. Execution ability becomes another crucial aspect to consider when investing in PSUs and the video highlights the decline in Bharat Heavy Electricals Limited's performance
5. Loosening of priorities is identified as another risk, as public sector companies may prioritize factors such as job creation and customer satisfaction over profitability
6. Management incentives, or lack thereof, are explored next and case in point is the disparity in salaries between public and private bank CEOs
7. Limited information transparency and public scrutiny
👉 Video Chapters:
00:00 Investing in PSU Stocks
00:58 PSU Stocks - Bargain or Trap?
02:33 1. Change in Policy
03:52 2. Change in Formula
06:15 3. Hidden in Plain Sight
08:07 4. Disorderly Execution
09:22 5. Misplaced Priorities
11:37 6. Wrong Incentives & Disincentives
12:25 7. Information Shy
13:12 Shankar's Viewpoint
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Disclaimer: I am not a SEBI registered investment advisor or research analyst. The content posted on this platform is purely for educational purposes and none of it constitutes investing or trading advice. Viewers should do their own research and diligence before investing or acting on the information presented

[@seema16878]

Good that you are back, it was boring otherwise.

[@shankarnath]

Thank you!

[@vamsikrishna24]

Loving the thumbnails of yours videos...!!!

[@shankarnath]

Thank you very much. I like making thumbnails. Its about capturing the essence of the video using a visual and 3-4 words .. plus the challenge of fitting it within that space & yet making it attractive so that more viewers might click it.

[@vamsikrishna24]

@@shankarnath yes, its working! the Thumbnails are the cherry on top of the already wonderfully informative videos! I especially love the selection of topics like these. These are MUST KNOW for investors. The motilal oswal wealth report does a 5 year and 25 year analysis on sectors/industries. One of the key highlights is that PSUs are easily the biggest wealth destroyers (over a larger time period).

[@karthikeyanv463]

Welcome back Shankar. Makes a lot of sense. I have a personal investment philosophy. When it comes to banking I put my money in PSU banks in FDs while investing in shares I prefer sound well run private banks.

[@shankarnath]

Thank you Karthikeyan and thanks for sharing your views.

[@vaishalighumare7572]

Great to see you back sir😊 very detailed analysis as always. Thanks

[@shankarnath]

So nice of you. Thank you very much

[@cgirish1988]

Good to have you back Shankarji.

[@shankarnath]

Thank you! Wonderful to be back .. I'll be sharing future plans over the coming weeks.

[@satyaprakashchoudhary6957]

Really very analytical video, and really eye opening for like me who are leaning towards psu. Thanks Shankar ❤

[@shankarnath]

My pleasure. Yes, these are some additional layers of risk that an investor in PSUs must process.

[@rahulchowdhary6449]

a lot of youtubers...i dont like them...but u tell after proper research......respect

[@shankarnath]

Thank you. Different content creators cater to different set of viewers in different styles. That's the beauty of KZbin ... finance can be taught in a classroom setting, using theatrics, using live data, as courses, as podcasts, as one-minute videos, as a story, with data etc. etc. True, every viewer will have their preference.

[@paragvaishampayan9501]

Really appreciable introspective knowledgeable content..thanks once again❤

[@shankarnath]

My pleasure 😊 .. glad you found it useful Parag. I have borne the burnt of this with BEL when the share price dropped due to a change in formula. Then then I have been shy of PSU stocks .. and hopefully we can start evaluating these stocks for the non-market risks they carry aswell.

[@suriyakumar1873]

@@shankarnath Great content as always, thank you so much for the knowledge. Shankar ji, can you also make a video on buying international ETFs like mafang, mon100 directly via zerodha but not as a FoF mutual fund and their taxation and which is better so we can get international exposure without much complexities.

[@bimbu4u]

Very good analysis. I have been a holder of few PSU stocks, mostly for dividend. Time to rethink about them.

[@shankarnath]

Thank you. On the subject of dividend, please watch the video on Dividend Aristocrats too which has had a positive impact in my own thinking aswell. I think you will like that. Link: kzbin.info/www/bejne/hXnXpp2EoJ6jirc

[@balwantgusain7904]

Shankar sir, wonderful job.❤

[@shankarnath]

Thank you very much! 🙌

[@mr.gentleman3595]

Great Video As Always 👏

[@shankarnath]

Appreciate that

[@sushantpradhan8216]

Thank you sir for this video, I was searching for some video like this on PSU. And thanks also for returning from leave😅

[@shankarnath]

Most welcome. Glad you found it useful

[@arup76]

Always wait for your video. Great analysis once again. Kudos!👍

[@shankarnath]

Thank you very much!

[@jayadevtn1987]

Thanks for the detailed analysis and view..

[@shankarnath]

Most welcome. Glad you liked it

[@user-gk9of4bj4q]

Nice to have you back❤

[@shankarnath]

Great to be back, thanks! It'll take me a week to get back in shape, I guess

[@sjain40b]

I created a Div. portfolio in my mothers A/c (0 tax) focusing on buying High D/Y, Consistent Op margin and VALUE. Took 1.5 years but accumulated RECL and coal @ right time right price I Love your Work sir Big Fan ❤

[@xia6279]

How come dividend is 0 tax?

[@shankarnath]

Thanks for sharing!

[@gauravthadanii]

what price did you buy coal india at?

[@surajsrivastava3179]

Thank you sir for resuming the enriching videos. Best wishes to you. 💐

[@shankarnath]

Most welcome. Thanks for your patience

[@biswas7]

Your thumbnails are great. So, creative

[@shankarnath]

Thank you!

[@ramyasri6093]

Excellent info.. the companies don't work for profit

[@shankarnath]

Thank you

[@suriyakumar1873]

Great content as always, thank you so much for the knowledge. Shankar ji, can you also make a video on buying international ETFs like mafang, mon100 directly via zerodha but not as a FoF mutual fund and their taxation and which is better so we can get international exposure without much complexities.

[@raviei426]

yes , a video on international investing plz

[@shankarnath]

Thanks for the suggestion

[@anujoybardhan]

Thanks Shankar for this lovely video❤, I personally have been a sucker for govt stocks and reason being , I used to think they are safer, good dividend yield and are reasonably valued unlike their private peers, however like your findings, the returns haven't been great, in fact have trimmed down quite a lot and what is left are PG, GAIL and PLNG...i don't know if they will give good returns way ..fingers crossed 🤞🤞🤞

[@shankarnath]

Most welcome, Anujoy. Glad you liked it and thanks for sharing you views on it aswell.

[@Suhass149]

I recently started investing in UTI Nifty 500 value 50 fund which has a lot of PSUs. However, the portfolio PE is about 8'ish and the dividend yield is 5%. However I am only using the fund as part of a multi factor portfolio and not as a sole investment vehicle

[@shankarnath]

Yes, this Nifty 500 Value 50 fund uses the PE ratio, PB ratio, Sales/mcap and Div Yield in identifying stocks .. and therefore this is likely to have a lot of PSUs in it. Personally, over time, my own understanding of "value" has changed from these metrics as more variables like FCF, spawn portfolio, EPS growth, accounting policy etc. have started to carry more weight

[@Suhass149]

@@shankarnath Yes, looking at upfront yields instead of some level of growth is meaningless in terms of value investing.

[@LearnValue]

Sir, I have counterview, that It is true that PSU are not buy and hold company. But if buy and exit at right time it can be profitable trade.. Only one thing should be clear in mind that company's fundamental must be good. Recent example:NTPC,PFC,REC,Indian bank,union bank of india,almost all psu bank,HAL and even KIOCL I think value cycle is running currently

[@raviei426]

appreciate, you answered my question from last video. i don't think anyone ever went so deep about psu. loved this. just a question, are you from consulting background? from where do you get this clear thinking approach.

[@shankarnath]

Most welcome. Nope, I've never worked with a consulting company. Maybe because I'm a single tasker (can't do multiple jobs at the same time), I'm used to going within a subject and look at it from different angles until I'm satisfied with the answer

[@nabeelyahiya]

Excellent again👌

[@shankarnath]

Thank you! Cheers!

[@SaurabhSingh-in]

Welcome back Shankar Sir, and great video again! Thanks I have a follow up, HAL has been part of my portfolio for over 2 years now and I am sitting over a very good profit. The points you mentioned has always concerned me, and recently the govt offloaded somewhat 3 percent of it’s stake as well. Any thoughts that you can share over HAL?

[@shankarnath]

Thank you. Apologies, I haven't analysed HAL and for that matter, most PSUs. I have been bitten on a couple of occasions myself so am wary of investing in govt. enterprises.

[@SaurabhSingh-in]

@@shankarnath Thank you Sir.

[@jayeshkotadiya3387]

Aapka thumbnail Gazab hota hai.....

[@shankarnath]

Thank you very much

[@sourabhmayekar3354]

Nice

[@thiyagarajanraji6719]

Can we have some stocks for dividend purpose sir? Like COAL INDIA, ONGC, PFC, POWERGRID, GAIL, CESC,NALCO, SAIL , NHPC, NTPC, NMDC etc

[@shankarnath]

Hello, kindly watch my video on dividend aristocrats. It goes deeper into dividends and its utility in stock selection. Link: kzbin.info/www/bejne/hXnXpp2EoJ6jirc

[@meghanaabhyankar9151]

Just nitpicking, but the turn of the century was on 01.01.2021, not 01.01.2020.

[@shankarnath]

Doesn't the century turn on 01.01.2000? i.e. the first day of the 21st century. That's the date we wrote in the video at 1:43

[@jgorti74]

hi shankar, any thoughts on Bharat 22 ETF?

[@shankarnath]

Hi, I don't have any views on it. But there is a story behind Bharat 22 which I think is quite a read. So we know the problems with the Unit Trust of India and the then government had to carve out a special component called the Specified Undertaking of the UTI (SUUTI) and transfer several UTI holdings into it. Now the government was not sure what to do with it and it still had disinvestment targets to achieve. So in the 2017 budget, the government announced its intention of creating an ETF to sell off the holdings in SUUTI to raise revenue. This is what led to the creation of the Bharat 22 ETF

[@vamsikrishna24]

Bharat 22 ETF consists of companies in which the government has large stakes. This ETF has outperformed NIFTY by a huge margin, thanks to the ETF heavy weights (SBI, L&T, ITC NTPC) performing extremely well in the past year. Be cautious of this ETF, as this is definitely more risky than the broader indices (NIFTY/SENSEX).

[@abhishekchahar7917]

Can you make a personal finance playlist for us. It will be great sir😊😊

[@shankarnath]

I have collected my personal finance videos in this playlist. Pls have a look: kzbin.info/www/bejne/eJWbaoWfn7B5b6s

[@abhishekchahar7917]

​@@shankarnath thank you sir. You are GOD OF FINANCE!!

[@dsaha7700]

Please remove word "tips" @1133/1134 in your channel subscription advert when you say in video.. Hope u know why ??

[@shankarnath]

Thanks for the suggestion

[@focus15624]

You need your own software to filter stocks. Screener or others will not do.

[@jhilmil1401]

Thumbnail😂😂