PSU Stocks Crash After Election Surprise; Should You Exit Defence and Railway Investments?

Public Sector Undertaking (PSU) stocks continued to drop on June 5 as investors sold off their shares. Cochin Shipyard, Bharat Dynamics, and other PSU stocks fell up to 10% in early trading today. This follows a big sell-off in the previous session after the actual election results differed from the exit polls, which had predicted a big win for the BJP-led NDA.

With the NDA not getting the expected majority, PSU stocks seem most at risk. However, analysts believe state-owned companies could still do well in the long run if the current government stays in power, even without a full majority for the BJP. This optimism is due to likely policy continuity.

Before the vote count, PSU stocks were doing well, boosted by initiatives like Make in India, increased capital spending, and efforts to revitalize the banking sector. But concerns about political stability have hurt investor confidence, leading to a sharp decline in these stocks over two days.

Although the NDA is still expected to secure a majority, Modi will have to work with regional allies like Telugu Desam and Janata Dal (Secular) and make policy adjustments, according to Emkay Global.

Emkay Global advises against investing in PSU and capital goods sectors for now, seeing them as most vulnerable. UBS also suggested investors switch from PSUs to FMCG stocks.

Investor Basant Maheshwari warned PSU stockholders that the market’s focus could shift away from PSU, defense, and renewable energy sectors with the formation of the new government. He expects these previously high-performing stocks to decline.

At 10:21 am, stocks like REC, Engineers India, BEL, Rail Vikas Nigam (RVNL), BHEL, Ircon International, BPCL, Power Finance Corporation (PFC), RITES, HPCL, Bank of India, and NMDC were trading 5-10% lower.

Sushil Kedia, founder of Kedianomics, believes the era for PSUs might be over, suggesting that defense and railway stocks have likely peaked.

Neeraj Chadawar of Axis Securities emphasized being selective in investing in PSUs with clear earnings visibility and consistent order books. He pointed out the importance of confidence in execution efficiencies, especially in long-term defense orders, despite substantial orders in the defense sector.