An analysis of the 59-stock BSE PSU index reveals 39 stocks that have witnessed a decline since June 4, the day when the general election results were announced. In this, 30 have fallen in double digits. The worst losers are Bharat Dynamics, Cochin Shipyard, Ircon International, Mangalore Refinery And Petrochemicals (MRPL), falling between 39% and 20% as on November 22 (a day before the announcement of Maharashtra assembly election results).
Eight stocks have fallen in single digits in the same period between 6% and 1% viz. Bank of Baroda (BoB), Bharat Petroleum Corporation (BPCL), Coal India, Gujarat Mineral Development Corporation (GMDC), Hindustan Aeronautics (HAL), Life Insurance Corporation (LIC), NBCC and NMDC.
Not all have been duds as 20 stocks have seen prices appreciate post June 4. The most remarkable rally has been in National Aluminium Company (NALCO) with the counter rising by 62%. It is followed by Mazagon Dock Shipbuilders (49%), NLC India (28%) and Oil India (28%). Five other stocks have given double-digit returns between 20% and 10% namely Rail Vikas Nigam Limited (RVNL), REC, Power Grid Corporations, Power Finance Corporation (PFC) and NTPC.
Ace Equity data on the BSE PSU index also revealed that 51 stocks fell to their 52-week-lows in November 2023 and many have rebounded impressively since then leading to multibagger returns even after accounting for corrections since June of this year.
Cochin Shipyard (141%), Housing & Urban Development Corporation (HUDCO, 153%) and NBCC (109%) have delivered multibagger returns from November 2023 lows even after accounting for corrections since June. While Cochin Shipyard has fallen 28% since June, HUDCO and NBCC have corrected by 10% and 1.4%, respectively. Others like National Aluminium Company (185%), Oil India (159%), Rail Vikas Nigam (RVNL, 159%), Mazagon Dock Shipbuilders (122%), NBCC (109%) and Bharat Electronics (104%) are stocks that have not just turned multibaggers since falling from their 52 week lows, but have also continued an upward trajectory post the Lok Sabha election results.Kranthi Bathini, Director-Equity Strategy at WealthMills Securities, feels it could be sector and stock specific. In his view, it will not be a secular rally like in the past. “The universe of PSU companies is wide and covers defence, railway, NBFC, power, minerals and OMCs among others. Investors should go for companies which have sound fundamentals and strong earnings visibility like banks and defence sector plays,” Bathini said.
His top long term bets are State Bank of India (SBI), Bank of Baroda (BoB), Mazagon Dock, Garden Reach Shipbuilders and Hindustan Aeronautics Limited (HAL).
Expert Sandip Sabharwal said that he would be somewhat careful on the railway PSUs as he sees some stalling in capex. But on defence PSUs and some financials, or even some of the shipyards which got sold off more than 50%, he expects a bounce back.
While the election outcome is a short term trigger, the next leg of the rally is expected to ride on Union Budget 2025 which is less than two months away.
“The pre-budget rally is starting and normally we see railways, defence, these kinds of sectors pick up in anticipation of the Union budget,” market expert Ajay Bagga said.
Bagga said that he sees quick money chasing PSU stocks now given significant fall in most PSU counters. His bet remains on power finance and power transmission companies as valuation worries weigh on railways and defence despite 30-50% cuts.
“Power sector in PSUs, the utilities in PSUs and the PSU banks, I think those are the ones which are more stable, which are more justifiable on a valuation basis rather than the railways and defence which are rallying strongly today. Again, they will hit a stumbling block post the budget. So, we will see a rally going into the budget as happens nearly every year and then you will see a sell-off post the budget, so that would be a word of caution. If you can ride it for the next two months, then it is good and get off before the doors start closing,” Bagga said.
On Monday, the BSE PSU index closed with nearly 3% uptick while in the early trade on Tuesday it was up 0.3%.
JP Morgan sees a long runway of structural growth in defence stocks and has taken a view on a number of stocks. The US brokerage has initiated a coverage on Bharat Electronics (BEL) with an ‘Overweight’ stance and target price of Rs 340.
The coverage is initiated on Hindustan Aeronautics (HAL) as well with target price of Rs 5,135.
JP Morgan said that there is an opportunity in these stocks after the recent price correction. The companies offer strong growth potential in defence production and growth.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
