BJP’s Maharashtra win puts light on PSU stocks; Will momentum be sustained till Budget 2025?

A resounding Maharashtra win by the Bharatiya Janata Party-led Mahayuti alliance has focused attention on PSU stocks and D-Street experts see the momentum continuing in the run-up to next year’s Union Budget. While valuations are still a concern for many, they say the path ahead is likely to be stock-specific, arguing that the recent correction is opening up opportunities for entry into state-run company stocks.

An analysis of the 59-stock BSE PSU index shows that 39 stocks have declined since June 4, the day the general election results were announced. Of these, 30 have reached double digits. Bharat Dynamics, Cochin Shipyard, Ircon International, Mangalore Refinery and Petrochemicals (MRPL) were the worst losers, falling between 39% and 20% on November 22 (a day before the announcement of Maharashtra assembly election results).

Eight stocks have fallen in single digits over the same period, between 6% and 1%. 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 are sunk as 20 stocks have seen price gains since June 4. The most significant gainer was in National Aluminum Company (NALCO) with the counter rising 62%. It is followed by Mazagon Dock Shipbuilders (49%), NLC India (28%) and Oil India (28%). Five other stocks like Rail Vikas Nigam Ltd (RVNL), REC, Power Grid Corporation, Power Finance Corporation (PFC) and NTPC have returned double digits between 20% and 10%.

Ace Equity Data on the BSE PSU index also revealed that 51 stocks tumbled to their 52-week lows in November 2023 and many have made impressive recoveries since then, leading to multibagger returns even after accounting for the correction since June this year.

Cochin Shipyard (141%), Housing and Urban Development Corporation (HUDCO, 153%) and NBCC (109%) have made multiple returns from November 2023 lows even after accounting for the correction since June. While Cochin Shipyard has declined 28% since June, HUDCO and NBCC have improved 10% and 1.4% respectively.

Other stocks are National Aluminum Company (185%), Oil India (159%), Rail Vikas Nigam (RVNL, 159%), Mazagon Dock Shipbuilders (122%), NBCC (109%) and Bharat Electronics (104%). Not only did it fall from its 52-week low, but it also continued its upward trajectory after the Lok Sabha election results.

Kranti Bathini, director-equity strategy at WealthMills Securities, feels it could be sector and stock specific. According to him, it will not be a secular rally like in the past. “The universe of PSU companies is vast and includes defence, railways, NBFCs, power, minerals and OMCs among others. Investors should go for companies that have good fundamentals and strong earnings visibility, such as banks and defense sector roles,” 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 Sandeep Sabharwal said he would be cautious on railway PSUs as he would see some stalls in capital. But defense PSUs and some financials or even some shipyards that have sold more than 50%, expect a bounce back.

While the election result is a short-term trigger, the next phase 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 generally we see sectors such as railways, defence, etc. rally in anticipation of the Union Budget,” market expert Ajay Bagga said.

Bagga said he sees fast money chasing PSU stocks now that most PSU counters have fallen significantly. His bets remain on power finance and power transmission companies as valuation concerns weigh on railways and defense despite a 30-50% cut.

“The power sector in PSUs, utilities in PSUs and PSU banks, I think those are the ones that are more stable, which are more reasonable based on valuations rather than railways and defense which are rallying strongly today. Again, they will. A bumpy hit after the budget. , so, we’ll see a rally in the budget like almost every year and then you’ll see a sell-off in the budget, so if you can run it for the next couple of months, that’s good and get off before the doors start closing Go,” said Bagga.

On Monday, the BSE PSU index closed up around 3% against 0.3% in early trade on Tuesday.

JP Morgan sees a long runway of structural growth in defense stocks and has considered a number of stocks. US brokerages have initiated coverage on Bharat Electronics (BEL) with an ‘Overweight’ stance and a target price of Rs 340.

This coverage is on Hindustan Aeronautics (HAL) as well as Rs. Initiated with a target price of 5,135.

JP Morgan said there is opportunity in these stocks after the recent price correction. Companies offer strong growth potential in defense manufacturing and growth.

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(Disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. These do not represent the views of Economic Times)