PSUs: PSUs lose Rs 4 lakh crore in 2 sessions, may fall more

Mumbai: The selloff in shares of public sector companies aggravated on Monday as disappointing third-quarter results of a few prompted traders to liquidate bullish bets. Analysts warn about the likelihood of further declines in these stocks, which have been the top performers on Dalal Street for the past three months. Any sharp fall in the next few weeks could, however, be a good time to buy some of them, they said.

The Nifty PSE (Public Sector Enterprises) index plummeted almost 4% on Monday, its highest single-day decline since January 23, when the index fell 4.3%. The index dropped 2.7% on Friday.

The decline in PSU shares in the past two trading sessions has caused ₹4.07 lakh crore erosion in the total market capitalisation of all state-owned companies to ₹50.21 lakh crore.

“Results of many PSUs have also been below par and could lead to deeper selloffs in those stocks,” said Sandip Sabharwal, founder, Asksandipsabhwawal.com, an investment advisory.

SJVN tumbled 20% after the company’s net profit fell 51% in the December quarter. IRCON and Rail Vikas Nigam also slumped over 11% each as investors were unimpressed by their third quarter results.

“The markets have sold off PSU stocks mainly due to the high underlining valuations,” said Souvik Saha, investment strategist at DSP Mutual Fund. “At stretched valuations, a slight mismatch between earnings estimate and actuals usually leads to a ruthless reaction by the markets.”In the past three months, the Nifty PSE index surged close to 29%, while the Smallcap 100 and Midcap 100 indices rose about 16-17% each.WHAT NEXT?
Analysts said declines in PSU stocks could last for as long as 2 months though there could be sharp rebounds. “PSU stocks are seeing bull market corrections, which last for 3-4 weeks but corrections are steeper in nature,” said Ruchit Jain, lead research analyst,5paisa. “A further 10-15% correction is likely to follow.” Sabharwal said correction should last 6-8 weeks but in the long term, defense PSUs are still expected to do well.

Analysts said the Relative Strength Index — a key technical indicator — is pointing to corrections in the PSU space. “The Nifty PSE index has seen no correction in past couple of months despite the sharp run up,” said Jain. “The negative divergence indicates imminent profit booking.”

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