Over the past three trading sessions, a sharp downturn in PSU stocks has led to considerable wealth erosion for a diverse range of investors, including the government, institutional entities, and individuals.
Government holdings in PSU stocks, which typically range from 30 to 90 percent, have collectively witnessed a wealth depletion of approximately Rs 3.79 lakh crore. Similarly, institutional investors have incurred losses amounting to roughly Rs 93,590 crore, while non-institutional investors have seen a market capitalization erosion of about Rs 45,300 crore. Individual investors, encompassing both those with holdings up to Rs 1 lakh and those exceeding this threshold, have experienced a decline in wealth totaling around Rs 36,440 crore over the aforementioned three sessions.
PSU stocks had been on a bullish trajectory since 2021, with the BSE PSU index posting gains for three consecutive years: 41 percent in 2021, 23 percent in 2022, and 55.3 percent in 2023.
These stocks had proven to be significant wealth generators for investors over the past three years. While some analysts had justified the re-rating of state-owned companies, a growing number are now adopting a more cautious stance.
Rajesh Palviya, an analyst at Axis Securities, remarked, This profit-taking indicates market health, signaling discomfort with overvalued stocks. Recent sharp gains in certain stocks led to substantial corrections in the last few sessions. Despite market discomfort with high valuations, euphoric buying persisted, overlooking fundamentals. December quarter earnings revealed profitability contractions in some midcap PSU stocks, prompting caution.
Palviya anticipates one to two more trading sessions characterized by profit-taking, followed by a potential rebound once the market stabilizes at a certain level and exhibits broader resilience. He foresees a 5-10 percent correction, which could reignite fresh buying interest in the sector due to its attractive valuations.
Conversely, some analysts suggest that not all PSU stocks may recover post-correction. Sectors such as railways, power, defense, and oil and gas, which enjoy high visibility and government support, are likely to attract renewed buying interest. Stocks lacking significant announcements may undergo a consolidation phase.
Analysts also emphasize that, overall, the economy appears robust, hinting at a bullish market trajectory. Following a market recovery, PSU stocks may regain momentum. Those who purchased at higher levels are advised to exercise patience, waiting for supply pressure to alleviate, evaluating their stocks, and considering averaging down in sectors exhibiting strong traction, such as defense and oil & gas, analysts concluded.