BJP-led Mahayuti alliance's decisive win in the Maharashtra assembly elections seems to have reignited investor interest in the PSU and banking space, with the BSE CPSE index rising by nearly 3% in mid-day trade on November 25.
The gains in the CPSE index were led by railway PSUs and NBCC. The BSE PSU index is higher by over 3% with PSU lenders Central Bank, Indian Bank and UCO Bank among the leading gainers.
Veteran market investor Sunil Subramaniam said the continued alignment between Centre and Maharashtra government is expected to boost policy implementation and accelerate government spending. This, he said, is leading to a renewed optimism in Public Sector Undertaking (PSU) stocks and other sectors benefiting from government initiatives.
Key takeaways from his interaction with Moneycontrol.
PSUs: Poised for a Comeback
After a significant correction of 40-50% from their highs, many PSU stocks appear attractive for investors now, Sunil Subramaniam said, given that the state government is now likely to ramp up spending in the second half of the fiscal, particularly in infrastructure and public services. PSU stocks may see heightened buying activity on this trigger.
Read More: Maharashtra Election win fires up PSU stocks – banks, energy, infra big gainers
PSBs May Lead the Charge
PSU banks are well-positioned to be at the forefront of the government's spending initiatives, believes Sunil Subramaniam. As primary channels for government spending, state-owned banks are expected to benefit significantly from increased lending to small and mid-cap companies involved in manufacturing, capital goods, cement, and steel, he said. Corporate lending is likely to drive earnings growth in this segment, making PSU banks a promising area for investment, Subramaniam added. The consistent government support and the push for economic reforms further bolster the sector's prospects.
Read More: Short covering and capex recovery set to drive markets higher: Vikas Khemani
Defence: A Strategic Play
Sunil Subramaniam said the defence sector presents a promising medium-term opportunity for investors. Budgetary support, coupled with potential joint ventures under the Production Linked Incentive (PLI) scheme, is set to strengthen domestic defence production, in his view. Collaborations with the US for localised manufacturing of defence equipment could further enhance growth in this space. "When you look at the Trump factor and the whole tariff situation, we know he's going to slap tariffs on China. While India may also face some tariffs, but it will be a two-way process. India could turn out to be a quite significant buyer of American defence equipment which will come in the form of a joint venture being set up through the PLI scheme. Then there will be some localisation and the PSU companies will be the partners of that. So over the medium-term, I expect India to be a big buyer of American defence that will involve localisation. However, investors are advised to adopt a staggered approach, given the sector's recovery timeline of two to three years" Subramaniam said. Investors should keep in mind that short-term results may remain muted, he added.
Disclaimer: The views and investment tips expressed by 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.
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