Index of PSU stocks takes a beating in August as overall share in m-cap dips

This decline marks a drop from the high of 16.24 percent recorded in May 2024 even as the share of the index has remained in double digits since December 2022.

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26 Aug, 2025 12:21

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India's state-run companies saw their market footprint shrink in August, with the BSE PSU Index's capitalization as a percentage of the country's overall market value falling to a seven-month low of 15.14 percent, as stocks of government-controlled companies took a breather after a dizzying rally.

The PSU index's market capitalization share has retreated from its May peak of 16.24 percent. Such has been the surge in PSU stocks that the share of the index has stayed in double digits since December 2022.

Off 52-Week Highs

The BSE PSU Index consists of 59 stocks, with 26 of those falling between 20-37 percent, 18 declining 10-19 percent, and 14 dropping 1-10 percent in August. Only Hindustan Petroleum Corp Ltd (HPCL) has been trading at its 52-week high.

The BSE PSU Index has declined by four percent since testing its 52-week high, while the benchmark Sensex is at fresh highs.

Analysts said this recent decline follows a significant rally earlier in the year that was fuelled by positive sentiment around increased public spend, reforms, and privatisation efforts.

Investors were hopeful of performance improvements in PSUs, boosted by strong earnings in sectors like energy and defence. PSUs were perceived as under-valued compared to their private sector peers, making them attractive bets in the rally, said analysts.

Siddarth Bhamre, Head of Research at Asit C Mehta Investment Intermediates, explained that the rally in PSU stocks since last year was driven by expectations of strong earnings, but recent earnings have not met these expectations. Earnings across PSU sectors, such as banks, capital goods, and metals, has been underwhelming, relative to the sharp rise in share prices since last year, prompting a correction.

Disappointing PSU earnings are the main reason for the correction, said Bhamre, even as overall market reached new highs. In terms of valuations, PSUs are still at relatively higher levels compared to their prices before June, making them less attractive for bargain hunting, as yet. Bhamre added that apart from SBI, no major PSU currently offers compelling valuation or earnings potential.

Among the biggest losers, Cochin Shipyard dropped 37 percent from its 52-week high, followed by BEML and MRPL, each down over 30 percent. Other major PSU stocks like Union Bank of India, KIOCL, UCO Bank, and Mazagon Dock Shipbuilders have fallen around 28 percent each.

Nirav Karkera, Head of Research at Fisdom said the recent decline can be attributed to profit-taking by investors after a sharp rise. A broader market correction driven by global uncertainties and a rising rate scenario has added to the pullback, along with the fact that many PSUs have reached valuations considered as fair or fully valued. With these stocks no longer seeming like bargains, the momentum has slowed, leading to a reduction in their market share.

Kranthi Bathini, Director of Equity Strategy at WealthMills Securities, noted that before general elections, there was significant excitement & euphoria around PSU companies, fuelling a rally beyond valuations in many cases. After the elections, these stocks are seeing consolidation and profit booking. There could be selective buying opportunities going forward in stocks like HAL, SBI, LIC, Coal India, and ONGC etc. Some pockets of railway and defence too may offer value, due to their strong order book and earnings visibility.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.