PSU shares tumble: Rs 6.4 lakh crore wealth destroyed in past 3 sessions

Prior to this, the BSE PSU index, comprising approximately 104 listed public sector firms, had risen for seven consecutive sessions, surging nearly nine percent during that time and accumulating a 13 percent gain for the year.

PSU stocks have been on an upward trend since 2021, with the BSE PSU index experiencing gains for the third consecutive year: 41 percent in 2021, 23 percent in 2022, and 55.3 percent in 2023.

After the sustained run in these stocks, analysts have been cautioning investors. While a section of the market continues to believe the re-rating in state-owned companies as a whole was very much warranted, some have turned skeptical. Recently, Kotak Institutional Equities rejected the recent market optimism on PSUs, expressing concerns about near-term focus, profitability, and potential risks in the medium-term. Despite a surge of 19-443 percent in PSU stocks over the past year, led by various sectors, Kotak expressed concern over “highly optimistic assumptions about medium-to-long-term growth and profitability.”

Market veteran Madhu Kela said some sections of PSU had become over-valued after the rapid gain over the past few months, thus the correction was neither surprising not unwarranted. He suggests waiting to see where individual stocks stabilize and emphasizes that buying will occur where there is valuation comfort.

“Stocks could lose about 10-15 percent as a whole, buying will emerge at the right price. We have to wait and watch.” Despite this correction, Kela sees the larger PSU story as intact, attributing it to a robust economy, strong public spending, and government initiatives to empower and enhance the performance of public sector companies.

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