Investors are closely monitoring public sector undertaking (PSU) stocks ahead of the final phase of the Lok Sabha elections, with market analysts suggesting that these stocks could see significant gains if the National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP), retains power.
PSU stocks have experienced substantial growth under the current government, with the market capitalization of 52 BSE PSU index stocks increasing nearly fivefold over the past four years. Notably, eight PSU stocks have delivered remarkable returns ranging from 1,000% to 2,150%, underscoring the sector's buoyancy.
Analysts attribute this performance to favorable government policies and directives that have supported PSU growth. For instance, initiatives in sectors like defense, where the BJP government has emphasized national security and domestic production, have spurred growth in companies operating within these domains.
However, the fate of PSU stocks hinges on the election outcome. Should the NDA retain power, analysts anticipate continued robust performance driven by favorable policies. Conversely, an unexpected outcome, such as the NDA failing to secure a majority, could lead to a de-rating of PSU stocks and trigger sell-offs, particularly in domestic-oriented sectors.
Market experts caution that a significant correction—potentially in the range of 15-20%—could occur if the BJP underperforms in the elections. Recovery from such a scenario could be prolonged, impacting sectors like PSUs, industrials, infrastructure, and defense-related stocks.
Brokerage firm CLSA has identified a list of companies, termed "Modi stocks," perceived as direct beneficiaries of Prime Minister Narendra Modi's policies, with half of them being PSUs. These stocks have outperformed the Nifty index over the past six months, indicating investor confidence in the government's policies. CLSA's preferred PSU buys include companies like ONGC, NTPC, NHPC, and SBI, among others.
Overall, the performance of PSU stocks in the upcoming period is closely tied to the electoral outcome and subsequent government policies, with investors closely monitoring developments to gauge the sector's trajectory.
