The final tally: Stocks that gained the most in the election rally

The BSE PSU index was the worst hit among sectoral indices, plunging 16 percent while BSE Capital Goods lost over 12 percent.

PSU stocks had their worst ever day on June 4, with some of them falling as much as 30 percent intra-day. It was a similar situation in mid and small caps as well, and to a lesser extent in small caps. The carnage notwithstanding, many stocks are still quoting significantly higher from the levels when the election dates were announced in mid-March.

The top performers in the days leading to the elections were PSUs and stocks in sectors such as capital goods, defence, railways, construction, and power. However, the run up in stock prices stretched valuations to a point where these stocks bore the brunt of selling pressure when sentiment changed for the worse following the NDA's smaller-than-anticipated win.

Stocks in the defence, capital goods, and power sectors delivered maximum returns in the large-cap segment since the announcement of election dates. Similarly, PSU stocks in these sectors led gains in the mid and small-cap segments, fueled by hopes of a strong growth because of the government's focus on indigenisation.

Within large-caps, defence stocks like Hindustan Aeronautics and Bharat Electronics, along with capital goods names such as ABB India and Siemens, emerged as top gainers.

In the midcap space, stocks like Thermax, RVNL, Mazagaon Dock Shipbuilders, and Schaeffler India, poised to benefit from the Modi government's policy continuity, still boast gains of 40-50 percent.

When it came to the small-cap segment, it was defence, railway and construction stocks that delivered exuberant returns of 50-100 percent, in just a span of three months.

The turning tide

Leading up to the election results, several brokerages had anticipated sectors such as PSU, and capital goods, to reap substantial benefits from Modi's potential return to power, despite their already lofty valuations. However, the market sentiment took a sharp turn as the election outcome fell short of expectations.

UBS Securities was quick to highlight that market valuations were not set-up for the kind of election outcome that eventually came through. Hence, the brokerage believes that without the push of a bull-case result scenario, Indian equities may not be able to sustain their expensive valuations merely on the basis of earnings growth and outlook.

"Much of the PSU re-rating in the past year was attributed to the government's focus on indigenisation and PLI schemes. However, except for PSU banks, the balance sheets of other PSUs lack the strength to justify their valuations," Rahul Arora, CEO of Nirmal Bang Institutional Equities said in an interaction with Moneycontrol.

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On similar grounds, Emkay Institutional Equities also expects a market de-rating. "PSUs and capital goods are the most vulnerable sectors, from which investors would stay away for the time being," the brokerage stated.

The vulnerability of these sectors became more evident in today's session where the BSE PSU index was the worst hit among sectoral indices, plunging 16 percent while BSE Capital Goods lost over 12 percent.

Other sectors that were expected to benefit from the BJP's return to power, such as BSE Power, BSE Utilities, BSE Industrials and BSE Energy also tanked 11-14 percent.

Nonetheless, even though the consensus on the Street now tilts towards forecasting a further correction in these sectors, it may be worth highlighting that it doesn't hinder their long-term growth prospects.

The vulnerability of these sectors became more evident in today's session where the BSE PSU index was the worst hit among sectoral indices, plunging 16 percent while BSE Capital Goods lost over 12 percent.

Despite the prevailing consensus suggesting the likelihood of further corrections, Rohit Srivastava of Indiacharts.com, believes that the long-term growth prospects of these sectors still remain intact. On that account, Srivastava feels that any potential shift away from PSU stocks would primarily be due to the short-term overbought conditions rather than a fundamental change in their growth trajectory.

Also Read | Sushil Kedia's election aftermath playbook: Exit financials, PSUs, enter FMCG and IT sectors

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