Why PSU Stocks are Falling

The entire bunch of PSU stocks saw a steep fall earlier this week on Wednesday, marking one of its worst days since the pandemic.

The one day sell-off cost nearly Rs 6.5 trillion of investor wealth!

After a day's relief rally on the next day, PSU stocks once again fell on Friday, 15 March 2024.

With the election season nearing, investors were hoping that the same PSU stocks that have rallied in the past one year, would do well in the future as well.

The optimism comes on prospects that if the current government comes into power once again, the ongoing focus on PSU stocks would continue and it would be happy sailing for the best PSU stocks going forward.

However, with this current fall in PSU stocks and the overall Indian share markets, questions have been raised that the PSU stocks rally has lost its legs.

Let's find out why PSU stocks are falling in March 2024 and what lies ahead.

#1 Mutual Fund Selling

Monthly data released by the association of mutual funds (AMFI) showed that mutual fund holding has come down in a lot of PSU stocks.

In February 2024, mutual funds reduced exposure in 14 public sector stocks.

The list includes names like IRFC, SJVN, NLC India, Ircon International, Hindustan Copper, NBCC India, among others.

You see, a correction was long overdue in PSU stocks following the stellar run they had in 2023.

Experts had already warned investors that it would be foolproof to expect the similar rally like last year to continue in 2024 as well.

Mutual fund managers taking some money off the table from PSU stocks just adds to this sentiment and proves that even the big names in the industry have started to book profit in PSU stocks.

#2 Valuation Concerns

The other obvious reason behind the selloff could be the valuations that PSU stocks are trading at.

The overall selloff in the Indian stock market in recent trading sessions has increased volatility and investors as usual, gave over to panic selling.

Most stocks fell today but PSUs fell more as investors took note of the froth in markets.

At the start of this year, we wrote an editorial highlighting some mind-blowing stats on PSU stocks.

Here's an excerpt:

• So, PSU stocks have given fantastic returns and a lot of investors have missed this bus. But what next? Can these investors still come aboard?
  
  Can these PSU multibaggers continue their good run well into 2024? Or is it too late now and the risk reward is no longer in favour of the investors?
  
  Well, I did some research, and the findings are not very encouraging. Out of 64 PSU stocks that I have data for going back many years (excluding PSU banks), nearly 8 out of 10 PSU stocks are trading above, and only 2 are trading below, their historical valuations.
  
  Further, only 1 out of 10 PSU stocks is trading at least 25% lower than its historical valuation.

You can read the entire editorial here.

So basically, if you're investing or holding any PSU stocks in your portfolio, you should ask yourself these questions:

• Can the government continue with its huge capex plans?
• Do these stocks have the balance sheet and the management bandwidth to grow at a much faster rate in the future?
• Will the market continue to award premium valuations to these stocks?

Once you're comfortable with your reasoning behind these questions, you could dip your hands in PSU stocks or vice versa.

What Next?

While some investors have accepted the fact that valuations have run ahead and turned cautious towards PSU companies, optimists believe that a further re-rating could be on the cards.

First, investors need to understand that multibagger returns are not possible year after year.

There will be some years where even a great long-term investment underperforms. That is just the nature of the stock market.

Our conclusion is that it would be incorrect to expect gains similar to 2023 from PSU stocks in any calendar year, especially 2024.

The market has priced in the multiple positive changes to these companies long-term prospects, in just about 15 months or so.

This does not mean that PSU stocks will crash.

The Modi led BJP government has always adopted a pro-business stand and with the help of schemes and policies, favoured PSU stocks in particular.

If the government continues its huge capex plans at the same pace that we've seen in the past two years, the market could further award premium valuations to PSU stocks.

Coupled with the tailwinds of India's booming infrastructure, rising energy demand, and government support, PSU stocks present compelling propositions for savvy investors.

The upcoming general elections in 2024 adds a new layer of opportunity (and threat of course), as the continuity of the current government will translate to continued policy support for infrastructure development and energy sectors.

All in all, it sure is turning out to be an exciting year for PSU stocks.

Performance of PSU Stocks in 2024 so far

Here's a table showing the performance of all the listed PSU stocks on various time-frames.

PSU Stocks Performance

	Change
Company	2024 so far	Past 1 Month	Past 1 Year
Hindustan Organic Chemicals Ltd.	-33%	-20%	72%
Gujarat State Fertilizers & Chemicals Ltd.	-28%	-18%	59%
Hindustan Fluorocarbons Ltd.	-26%	-22%	66%
Tanfac Industries Ltd.	-25%	-8%	101%
Rashtriya Chemicals and Fertilizers Ltd.	-24%	-15%	29%
Gujarat Narmada Valley Fertilizers & Chemicals Ltd.	-23%	-6%	16%
Gujarat Mineral Development Corporation Ltd.	-20%	-17%	153%
The Orissa Minerals Development Company Ltd.	-19%	-16%	122%
Bharat Immunologicals & Biologicals Corporation Ltd.	-18%	-20%	21%
The Fertilisers And Chemicals Travancore Ltd.	-18%	-13%	218%
PTC India Financial Services Ltd.	-18%	-26%	154%
Andrew Yule & Company Ltd.	-18%	-32%	67%
PNB Housing Finance Ltd.	-18%	-17%	50%
Mazagon Dock Shipbuilders Ltd.	-17%	-12%	181%
Garden Reach Shipbuilders & Engineers Ltd.	-17%	-11%	80%
NLC India Ltd.	-14%	-15%	172%
MOIL Ltd.	-13%	-7%	82%
Mishra Dhatu Nigam Ltd.	-12%	-13%	88%
GIC Housing Finance Ltd.	-11%	-19%	23%
HMT Ltd.	-11%	-26%	89%
ITI Ltd.	-10%	-13%	204%
National Fertilizers Ltd.	-9%	-15%	28%
PTC India Ltd.	-7%	-10%	106%
Can Fin Homes Ltd.	-6%	-11%	40%
The State Trading Corporation Of India Ltd.	-5%	-22%	91%
NMDC Ltd.	-5%	-18%	73%
Bharat Dynamics Ltd.	-4%	0%	83%
Railtel Corporation Of India Ltd.	-4%	-12%	217%
Balmer Lawrie & Company Ltd.	-3%	-17%	91%
Hindustan Copper Ltd.	-3%	2%	166%
BEML Ltd.	-2%	-11%	139%
Steel Authority Of India Ltd.	-2%	-3%	39%
UTI Asset Management Company Ltd.	-2%	-6%	29%
Repco Home Finance Ltd.	0%	-14%	128%
KIOCL Ltd.	1%	-22%	117%
Container Corporation Of India Ltd.	1%	-9%	47%
Indian Railway Catering And Tourism Corporation Ltd.	1%	-5%	48%
Power Finance Corporation Ltd.	1%	-8%	211%
The Jammu & Kashmir Bank Ltd.	3%	-10%	178%
Mahanagar Telephone Nigam Ltd.	4%	-27%	82%
National Aluminium Company Ltd.	4%	-10%	69%
Scooters India Ltd.	4%	-12%	133%
NTPC Ltd.	4%	-5%	81%
Punjab Communications Ltd.	4%	-14%	61%
LIC Housing Finance Ltd.	5%	-7%	72%
Mahanagar Gas Ltd.	5%	-16%	30%
Bharat Electronics Ltd.	6%	5%	111%
GAIL (India) Ltd.	6%	-4%	61%
Dredging Corporation Of India Ltd.	7%	-15%	108%
Engineers India Ltd.	8%	-9%	156%
Gujarat State Petronet Ltd.	8%	-7%	26%
General Insurance Corporation of India	8%	-12%	149%
The New India Assurance Company Ltd.	8%	-5%	132%
REC Ltd.	9%	-4%	298%
Bank Of Baroda	11%	-6%	63%
PNB Gilts Ltd.	11%	-1%	87%
Gujarat Gas Ltd.	11%	-8%	9%
Tamilnadu Telecommunications Ltd.	11%	-33%	56%
Life Insurance Corporation of India	12%	-9%	66%
Hindustan Aeronautics Ltd.	12%	5%	128%
Coal India Ltd.	12%	-10%	94%
Power Grid Corporation Of India Ltd.	12%	-5%	56%
Bharat Heavy Electricals Ltd.	14%	-1%	202%
MMTC Ltd.	14%	-15%	132%
Bank Of India	15%	-9%	87%
Indbank Merchant Banking Services Ltd.	15%	-14%	101%
Indian Bank	16%	-6%	87%
Cochin Shipyard Ltd.	18%	-6%	264%
Petronet LNG Ltd.	18%	-4%	13%
Union Bank Of India	19%	-1%	119%
Ircon International Ltd.	20%	-10%	294%
Central Bank Of India	20%	-10%	150%
Ind Bank Housing Ltd.	20%	-3%	78%
Balmer Lawrie Investments Ltd.	21%	-11%	70%
Chennai Petroleum Corporation Ltd.	21%	-13%	216%
Punjab National Bank	23%	-6%	153%
Canara Bank	24%	-7%	95%
Shipping Corporation Of India Ltd.	25%	-11%	63%
Hindustan Petroleum Corporation Ltd.	25%	-13%	117%
Gujarat State Financial Corporation Ltd.	27%	-28%	229%
SJVN Ltd.	28%	-5%	278%
Bank Of Maharashtra	28%	-6%	135%
Oil & Natural Gas Corporation Ltd.	28%	-5%	73%
NHPC Ltd.	28%	-8%	107%
Rites Ltd.	29%	-17%	89%
MSTC Ltd.	30%	-10%	229%
Indian Oil Corporation Ltd.	31%	-10%	117%
UCO Bank	32%	-14%	113%
Rail Vikas Nigam Ltd.	34%	-6%	288%
India Tourism Development Corporation Ltd.	35%	-12%	105%
Bharat Petroleum Corporation Ltd.	35%	-7%	84%
IFCI Ltd.	37%	-24%	276%
Punjab & Sind Bank	37%	-14%	138%
Housing & Urban Development Corporation Ltd.	39%	-12%	295%
Indian Railway Finance Corporation Ltd.	40%	-12%	420%
Indian Overseas Bank	40%	-12%	165%
NBCC (India) Ltd.	42%	-15%	224%
Tourism Finance Corporation Of India Ltd.	44%	-2%	173%
Oil India Ltd.	51%	2%	121%
Mangalore Refinery And Petrochemicals Ltd.	57%	-15%	252%

Data Source: Equitymaster

To know more on PSU stocks, check out our guide on the best PSU stocks in India.

Also check out the below video where Co-head of Research at Equitymaster Rahul Shah talks about PSU stocks, their valuations and what lies ahead in 2024.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here.