Stock picks: Raja Venkataraman recommends three PSU stocks to buy in a bearish market

Here are the key factors that you should consider while evaluating such stocks:

1. Strong financials

– Look for PSUs with healthy balance sheets, low debt-to-equity ratios, and consistent profitability.

– Companies with stable cash flows and strong dividend payouts are preferable.

2. Defensive sectors

– Focus on PSUs in sectors such as utilities (power generation and distribution), oil and gas, and infrastructure, which tend to perform well even during economic slowdowns.

– Examples include NTPC (power) and Coal India (energy).

3. Government support

– PSUs benefit from government backing, especially those in strategic sectors such as defense, energy and banking.

– Check for recent government initiatives or policies that could boost the company’s growth.

4. Valuation metrics

– Look for undervalued stocks with low P/E ratios and high dividend yields.

– Compare the stock’s valuation with its historical performance and industry peers.

5. Market leadership

– Choose PSUs that are market leaders in their sectors, as they are more likely to withstand market volatility.

– Examples of these are Bharat Electronics Limited (BEL) and Power Grid Corporation.

6. Dividend history

– PSUs are known for paying large, regular dividends. Look for companies with a strong track record of rewarding shareholders.

7. Sector-specific growth

– Identify PSUs in sectors with long-term growth potential, such as renewable energy (NTPC Green Energy) or infrastructure development (IRCON).

Three PSU stocks to buy today

Here are some attractive PSU stocks in the current market, based on their fundamentals and potential for recovery:

NTPC

A leader in power generation, NTPC offers consistent performance. It is also expanding into renewable energy, which makes it a resilient option.

Factors that make NTPC a strong candidate

1. Stable business model: NTPC operates in the power generation sector, which is a defensive industry. Electricity demand remains relatively stable, even during economic downturns, ensuring consistent revenues.
2. Government backing: As a PSU, NTPC benefits from strong government support. This includes favorable policies, subsidies, and funding for expansion projects, which enhance its stability and growth prospects.
3. Focus on renewable energy: NTPC is diversifying into renewable energy, including solar and wind power. This positions it well for long-term growth as the world transitions to cleaner energy sources.
4. Strong financials: NTPC has a robust balance sheet with steady cash flows and manageable debt levels. It also offers attractive dividend yields, making it a reliable choice for investors seeking income.
5. Capacity expansion: The company is consistently expanding its power generation capacity, including through joint ventures and new projects. This ensures future growth and strengthens its market leadership.

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These pointers are validated by the chart setup as we can note that prices are stabilising around ₹310 after a sharp fall from the highs of September. Constant volatility in the market means trends remain challenged at higher levels. However, looking at the Relative Strength Index (RSI), the trends indicate on a larger timeframe that there is a revival in progress. This could be a good time to consider buying as larger timeframes indicate the important Fibonacci support region has been held since the start of the year. A rebound from here could help the stock scale an important value area around 370 in the next six months.

Oil and Natural Gas Corporation (ONGC)

A key player in oil exploration and production, ONGC benefits from government backing and global energy demand.

Factors that make ONGC a strong candidate

1. Market leadership: ONGC is India’s largest crude oil and natural gas producer, contributing significantly to the country’s energy security. Its dominant position in the market ensures steady demand for its products.
2. Government support: As a PSU, ONGC benefits from strong government backing, including favorable policies and subsidies. This support provides stability, especially during volatile market conditions.
3. Global energy demand: Despite market fluctuations, global demand for oil and natural gas remains robust. ONGC’s extensive infrastructure and international presence through ONGC Videsh position it well to capitalize on this demand.
4. Strong financials: ONGC has a solid financial foundation, with consistent revenues and profitability. Its ability to generate cash flows even during downturns makes it a reliable investment.
5. Dividends: ONGC is known for its attractive dividend yields and thus appeals to investors seeking regular income, especially in uncertain times.

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After a stellar run, ONGC is facing trouble at higher levels amid a fall in crude prices over the past few months. The sharp drop since September 2024 has caused the stock to slide into a strong support region and the constant rebound from trendline support indicates a positive outlook.

The RSI is also attempting to hold back at the neutral zone, showing intention of a reversal. Hence, this could be a good time to go long as upward potential towards the ₹300 zone is seen over the next six months.

Bharat Electronics Limited (BEL)

A leader in defence electronics, BEL is well-positioned to benefit from increased government spending in the defence sector.

Factors that make BEL a strong candidate

1. Defense sector resilience: BEL operates in the defence electronics sector, which is relatively insulated from economic downturns. The demand for defence equipment remains steady due to national security priorities.
2. Strong order book: BEL consistently maintains a robust order book, ensuring revenue visibility for the coming years. This stability makes it a reliable choice during volatile market conditions.
3. Government backing: As a PSU, BEL benefits from government support, especially with the ‘Make in India’ initiative and an increased focus on defense indigenisation. This provides a favorable environment for growth.
4. Financial strength: BEL has a solid financial foundation, with consistent profitability and manageable debt levels. Its ability to generate steady cash flows adds to its appeal.
5. Growth potential: The company is expanding its product portfolio and exploring new opportunities in emerging technologies such as AI and cybersecurity, ensuring good long-term growth prospects.

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Despite the trends facing challenges at higher levels, forcing the overall market to reconsider a long opportunity at this level, this stock has managed to hold back the bearish bias and reinforce its bullish momentum.

The trends clearly indicate that the reaction into the 260 region from where it is currently rebounding is a strong Fibonacci support zone. Also, the RSI is steadily rising and this could fuel the upward momentum. A combination of positive newsflow and encouraging price action suggests more upside is possible in this counter, which could retest previous highs of 340 in the next six months.

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Raja Venkatraman is co-founder, NeoTrader. His Sebi-registered research analyst registration no. is INH000016223.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before making any investment decisions.