BJP's Maharashtra win puts spotlight on PSU stocks; will momentum sustain till Budget 2025?

Bharatiya Janata Party led Mahayuti alliance's emphatic Maharashtra win has brought back the focus on PSU stocks and D-Street experts see this momentum to continue in the run-up to next year's Union Budget. While valuations still remain a concern for many, the road ahead is likely to be stock specific, they say, arguing that the recent correction is offering pockets of opportunities to make entry in the state-run company stocks.

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.