In the realm of the Indian stock market, Public Sector Units, or PSUs, are not typically the darlings of investors. They often lurk in the shadows, overshadowed by the glitz and glamour of private sector giants. However, there came a moment in the summer of 2023 when the spotlight briefly shifted, casting an unexpected radiance upon these state-owned enterprises.
It was a memorable day in August when Prime Minister Narendra Modi, known for his eloquence and wit, graced the parliamentary chambers during a heated debate on a no-confidence motion. Amidst the fervent arguments and impassioned speeches, he injected a dose of humour into the proceedings. With a twinkle in his eye, he quipped that those with an eye on the stock market should consider investing in PSUs.
Little did anyone anticipate the ripple effect that would follow. In the wake of that playful suggestion, a curious phenomenon began to unfold. PSUs, long considered the stodgy, overlooked players in the stock market, started to climb. Their stock prices, which had often languished, embarked on a meteoric ascent.
Read: PEG Ratio
Yet, despite this newfound attention, PSUs remained enigmatic. They were not the kind of stocks that commanded unwavering adoration from investors. Many sceptics still believed that PSUs were devoid of growth potential, a notion incongruent with the fast-paced, growth-centric world of modern markets. Consequently, these stocks did not form a substantial portion of most investors’ portfolios.
The prevailing sentiment against PSUs was fortified by two market-perceived negatives: political risks and uncertainties, and the cyclical nature of their businesses. These factors, some argued, rendered investing in PSUs akin to traversing treacherous terrain.
But in the midst of this market upheaval, an intriguing story emerged, one that few had heard before. It was the story of a PSU stock – MMTC, or the Metals and Minerals Trading Corporation. MMTC’s operations were as diverse as they come, spanning six major divisions: minerals, metals, precious metals, agro products, fertilizers and chemicals, and coal and hydrocarbons.
As we journey back in time to 2007, MMTC stands as an enigma. In March of that year, its earnings per share (EPS) was a modest Rs 32. However, come November 26, 2007, MMTC share price soared to an astonishing Rs 33,000, commanding a staggering price-to-earnings (PE) ratio of over 1000. Yes, you read that correctly – a PE multiple of 1,027x.
But the story doesn’t end there. In the same month, MMTC reached its 52-week high, an astonishing Rs 56,931. At that moment, the stock was quoting at a jaw-dropping PE ratio of 1,779x. It was an anomaly, an aberration in the world of stock valuation.
The question that begged an answer was this: how could a PSU stock, especially one dealing in commodities, command such exorbitant PE multiples? The explanation lies in the realm of speculative investor behaviour. In the throes of a frenzied market, where rationality often took a backseat, MMTC had become a playground for those willing to gamble on the improbable.
In the annals of stock market history, MMTC’s meteoric rise stands as a testament to the capricious nature of markets, where rationality and speculation can sometimes dance together, creating a spectacle that defies conventional wisdom. It was a tale that defied expectations, proving that in the world of stocks, even the most unassuming and unlikely contenders can seize the spotlight, if only for a fleeting moment.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.