3 PSU stocks that Citi likes as BJP-led NDA looks to form govt post elections

Foreign brokerage Citi said while there could be some near-term volatility the PSU space given the sharp rerating in PSU shares over the past year, it remains selective and likes PSU names such as NTPC Ltd, GAIL Ltd, Bharat Electronics Ltd. Citi said these stocks should continue to benefit from favorable medium term growth drivers going forward.

Citi said it sees a possibility of bringing gas under the purview of GST, which could benefit the entire gas value chain. Possible beneficiaries, it said, include  GAIL and city gas distributors. Citi said such a development is possible given the NDA possesses the requisite majority in the GST Council, given its focus on enhancing usage of gas in the economy, and also as this remains relatively less politically contentious.

Inclusion of gas under GST would reduce tax inefficiencies along the gas value chain (gas currently attracts various input & output taxes leading to cascading of taxes). It would address differences in taxation between states. It would allow entities such as GAIL, CGDs, and industrial gas consumers to avail input tax credits on their gas purchases (presently these lie stranded as gas still falls under the VAT regime).

"While end of exclusivity and entry of competition is often perceived as a threat to well-established CGD entities like IGL, MGL, GGAS, we believe that this may not be much of a concern, esp. for CNG-focused entities like IGL & MGL, though we believe that Gujarat Gas could be at greater risk given its higher share of industrial volumes that are concentrated in certain pockets," it said.

Citi said the market will be more pragmatic on strategic disinvestment and watch out for further clarity in the budget. Probabilities associated with certain specific divestment targets will likely reduce in the near term, it said.

The brokerage said it continues to like private sector banks over PSUs.