Mutual funds lose Rs 90,000 crore in PSU stocks amid poll verdict-led market correction

As of June 4th, mutual funds (MF) held the largest stake in State Bank of India (SBI), followed by NTPC Ltd and Bharat Electronics Ltd. MF's holding in SBI shares was worth Rs 77,400 crore, down from Rs 90,440 crore on June 3

Mutual funds lost a whopping Rs 90,000 crore in market value in public sector firms over the last two sessions due to sharp correction in Indian markets due to election outcome.

As of June 3, mutual funds held shares worth over Rs 5.71 lakh crore in 84 state-run firms. After the unexpected election results, this value dropped to Rs 4.83 lakh crore.

As of June 4, mutual funds (MF) held the largest stake in State Bank of India (SBI), followed by NTPC Ltd and Bharat Electronics Ltd. MFs' holding in SBI shares was worth Rs 77,400 crore, down from Rs 90,440 crore on June 3, marking a decrease of Rs 13,040 crore. MFs’ holding in NTPC was valued at Rs 58,157 crore, a decline of Rs 10,625 crore from the previous day's Rs 68,780 crore.

Other significant holdings include Power Grid Corp (Rs 31,136 crore), Coal India (Rs 29,420 crore), Power Finance Corp (Rs 22,430 crore), REC (Rs 18,390 crore), and ONGC (Rs 18,955 crore). The MF value in these firms decreased by Rs 8,275 crore, Rs 4,400 crore, Rs 4,665 crore, Rs 4,500 crore, and Rs 5,490 crore, respectively.

PSU stocks' share in total market cap dropped to a six-month low of 13.1% as of June 5, down from a seven-year high of over 16% in May. Indian listed PSU firms collectively lost nearly Rs 10 lakh crore in the last two sessions, bringing their total market capitalisation to Rs 55 lakh crore. This decline was fueled by a robust rally in state-owned companies.

The Indian markets experienced sharp corrections in the last two sessions following Prime Minister Narendra Modi's failure to secure a majority for the ruling BJP in the national election.

Deepak Jasani, HDFC Securities' head of retail research, noted that PSUs thrived under BJP's majority rule due to increased operational freedom, enhanced revenue visibility, support for exports, and expectations of gradual divestment. However, with uncertainties under the new circumstances, doubts arise regarding government support.

The recent fall in PSU stocks occurred after they were overvalued, prompting a revision to the mean. Looking ahead, PSU banks seem promising, while other stocks may attract rotational interest. Clarity is awaited from the next budget, which will determine government spending in sectors like railways, ports, and capital goods, influencing investment decisions in PSU stocks, Jasani added.

Kotak Institutional Equities said it phased out capital goods stocks and PSU banks recently due to their poor reward-risk balance after a sharp rally in the last 12-15 months. Emkay anticipates a short-term market derating due to increased risk in India. They advise staying away from PSUs and capital goods, which are the most vulnerable sectors. Conversely, they predict a comeback in consumption, particularly in FMCG and value retailers. They are also positive about healthcare.

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