Shares of state-owned companies bore the brunt of the uncertainty around election results on Tuesday as vote counting showed a slim victory margin for the BJP-led NDA government compared to exit poll predictions.
The BSE PSU index witnessed a steep drop of 3,526.86 points or 15.68% to close at 18,964.63 points, with REC declining over 25% to `452.50, followed by Power Finance Corporation which was down 23% at `427.30. Several shares of public sector undertakings (PSUs) hit their lower circuits during the session and ended 10-20% lower on Tuesday.
Shares of public sector lender State Bank of India (SBI) plunged 14.4% to Rs 784.6 apiece, which dragged down the Nifty PSU Bank index by over 15% or 1,211.90 points to 6,794.25 points, making it the worst hit among sectoral indices.
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Others like ONGC slumped 16.23%, Coal India fell 13.54%, NTPC went lower by 14.52%, and Power Grid slipped 11.98%. Further, share price of Union Bank tumbled 17.65% to end at `140, Bank of Baroda slumped 15.74%, Punjab National Bank declined 15.15% and Canara Bank plunged 13.45%.
The defence PSU stocks also tumbled up to 20%, with the share prices of BEML slumped 20% to close at `3,738.85, Bharat Heavy Electricals plunged 18.88%, Hindustan Aeronautics dropped 17.17%.
These stocks had run up quite a bit in the past few months as market participants expected these to be beneficiaries of the BJP government’s aggressive reforms in the third term.
Between 2021 and 2024, the PSU sector has been one of the largest wealth creators with the market cap of the 55 listed PSUs jumping from 18.2 trillion in April 2021 to 71.64 trillion as of June 3. This rise can be attributed to re-ratings in the space and confidence in the governments’ focus on infrastructure, manufacturing and capital expenditure themes, said market experts. Come from Sports betting site VPbet
Now, a slim majority for the BJP has dampened hopes of big bang reforms by the government, which has also resurfaced concerns of rich valuations in these pockets, experts said.
“With a coalition government, it will be difficult for the government to implement big bang reforms which are necessary for accelerating growth. Even the high valuations will have to come down with the kind of political instability that might be in store,” VK Vijayakumar, chief investment strategist at Geojit Financial Services said.
He said that the market was expecting a transformational Budget, but it might turn a bit more populous now. He doesn’t expect a sharp rebound in the market going ahead and expects foreign investors to wait for more clarity and lower valuations to enter again.
These concerns are expected to have a bearing on the PSU sector stocks, as investors will look for other pockets in the market with better risk-reward.
“We believe that money will incrementally rotate into more neutral sectors such as IT, consumption, healthcare, autos, chemicals and telecom and away from sectors with high dependency on government policies such as PSUs, capital goods and defence,” Ruchir Kapoor, managing director at Merisis Wealth said.
Unmesh Sharma, executive vice president and head of institutional equities at HDFC Securities said he doesn’t see reason for a long term investor to get into the PSU theme at these expensive prices, irrespective of the government. There is enough value in large banks in the private sector and some quality smaller banks compared to PSUs, he said.
