Have you noticed the recent surge in Central Public Sector Enterprises (CPSEs)? It’s no coincidence that the Nifty CPSE Index, a barometer of these state-owned entities, has been outperforming the broader stock market. With the government’s focus on strengthening its public sector and the growing energy demand, these stocks have become a hot commodity among investors.
Let’s examine the factors driving this rally more closely and explore whether there’s steam left in the CPSE stocks.
A Year of Stellar Returns for the Nifty CPSE Index
Over the past year, the Nifty CPSE Index has surged by a remarkable 80%, far outpacing the Nifty 50’s 27% gains. This impressive performance is largely attributed to the robust growth in the power sector, which constitutes nearly half of the CPSE Index.
Despite concerns about the power sector’s near-term prospects, the government’s ambitious National Electric Plan, involving a massive investment of 9.15 lakh crore, has ignited investor enthusiasm. This plan aims to bolster India’s power infrastructure and enhance energy security.
The Energy Surge
Since the March 2020 lows, when the Nifty CPSE Index was at around 1,100, it has skyrocketed to over 7,600, delivering a staggering 575% return. In comparison, the Nifty 50 has gained 250% during the same period. This surge in CPSE valuations reflects growing confidence among investors in these state-owned enterprises, which were once overlooked and undervalued.
The Nifty CPSE Index comprises 11 stocks, with the power sector dominating at 46.48%. The oil and gas sector follows closely with 36.11%, capital goods at 15.72%, and construction contributes 1.7%. Among the major contributors, NTPC leads with a weightage of 20.37%, followed by Power Grid Corporation of India at 19.44%. Other key players include Oil and Natural Gas Corporation (ONGC) at 15.86%, Coal India at 15.9%, and Bharat Electronics Limited (BEL) at 14.01%.
| Company | Weightage (in %) | March 2020Low (INR) | NBCC (India) | Returns(%) |
| NTPC | 20.4 | 73.2 | 448.5 | 512.6 |
| Power Grid Corporation of India | 19.4 | 68.7 | 366.4 | 433.2 |
| Coal India | 15.9 | 119.2 | 543.5 | 355.9 |
| Oil & Natural Gas Corporation | 15.9 | 50 | 345 | 590 |
| Bharat Electronics | 14 | 18.7 | 340.5 | 1723.8 |
| Oil India | 4.3 | 42.3 | 767.9 | 1714.1 |
| NHPC | 4.1 | 15.1 | 118.4 | 684.1 |
| Cochin Shipyard | 1.7 | 104.5 | 2979 | 2750.7 |
| NBCC (india) | 1.7 | 9.4 | 139.8 | 1392.3 |
| SJVN | 1.3 | 17.3 | 170.5 | 888.4 |
| NLC India | 1.3 | 34.9 | 311.8 | 792.1 |
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Energy Sector Driving Performance
A closer examination reveals that the energy sector has been the backbone of the Nifty CPSE Index’s growth. The Nifty Energy Index has posted a robust 360% return since March 2020, a performance mirrored by the CPSE Index, which has 82.59% exposure to the energy sector. Energy stocks have been instrumental in driving the index’s rise.
Key factors behind the energy sector’s strong performance
1. Increased demand for electricity: As India’s economy expands, the demand for power has risen, benefiting power-generation companies like NTPC and Power Grid Corporation.
2. Government support: The Indian government has provided incentives and investments in renewable energy and infrastructure, supporting the sector’s growth.
3. Rising fuel prices: Higher global fuel prices have boosted the profitability of upstream companies such as ONGC and Oil India, included in the Nifty CPSE Index.
The Road Ahead for Nifty CPSE Index
Despite its strong performance, many question whether the Nifty CPSE Index can sustain its current rally. From 2014 to late 2020, the CPSE Index underperformed compared to the Nifty 50. During that period, while the Nifty 50 posted a return of 110%, the CPSE Index lagged. However, this trend reversed in late 2020 as investor sentiment shifted towards public sector enterprises, leading the CPSE Index to outperform the Nifty 50 consistently.
Recently, the CPSE Index has seen a 10% correction from its all-time high of 7,660, finding support at the 6,600 level. Technical analysis of the CPSE Index relative to the Nifty 50 suggests the uptrend remains intact. Should the ratio chart between the two indices fall into negative territory, it could signal a potential reversal in the CPSE Index’s outperformance. However, current indicators suggest this scenario is less likely.
Energy Sector’s Critical Role
Given the significant weight of the energy sector in the Nifty CPSE Index, the performance of the Nifty Energy Index is a crucial element to watch. The Nifty Energy Index consists of key CPSEs, including NTPC and Power Grid Corporation, which account for 26.29% of the total weightage. These companies are also the largest contributors to the Nifty CPSE Index.
In addition, ONGC and Coal India contribute another 16.44% to the Nifty Energy Index. Together, NTPC, Power Grid, ONGC, and Coal India are pivotal in driving the Nifty Energy Index and the broader Nifty CPSE Index.
From a technical perspective, the point-and-figure chart for the Nifty Energy Index remains bullish over the long term, with an open anchor column target of 62,000, indicating significant upside potential. A key support level for the Nifty Energy Index is located at 37,000. If the index breaks below this level, it could signal a bearish trend. However, as long as it stays above 37,000, the outlook remains positive, and the target of 62,000 remains achievable. Source: The Economic Times
7 Key Takeaways from Nifty CPSE Index
1. Nifty CPSE Index’s Strong Performance: The index has surged 575% since March 2020, well ahead of the Nifty 50’s 250% gain during the same period.
2. Energy Sector Dominance: The energy sector constitutes 82.59% of the CPSE Index, with power companies like NTPC and Power Grid leading the charge.
3. Top Contributors: NTPC (20.37%), Power Grid (19.44%), ONGC (15.86%), Coal India (15.9%), and BEL (14.01%) are the largest holdings in the index.
4. Government’s Role: Government support, including the ₹9.15 lakh crore investment under the National Electric Plan, has bolstered the sector’s growth.
5. Energy Sector Growth: The Nifty Energy Index has risen 360% since March 2020, driving much of the CPSE Index’s performance.
6. Recent Correction: The CPSE Index has corrected 10% from its peak of 7,660 but remains supported at 6,600, indicating the uptrend is intact.
7. Future Outlook: With technical indicators pointing toward continued bullish momentum, the energy sector, particularly NTPC, Power Grid, ONGC, and Coal India, remains a key driver of future growth.
Conclusion
The Nifty CPSE Index, driven primarily by power and energy stocks, has been on a strong upward trajectory. While there may be some short-term fluctuations, the long-term outlook remains bullish, especially with the continued support from the government and rising energy demand. Investors should keep a close watch on key technical levels and market trends to gauge the sustainability of this rally.
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I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
love to write on equity investing, retirement, managing money, and more.
