Modi’s midas touch for PSU stocks? Since the beginning of the Lok Sabha election on April 19, Dalal Street investors have been accumulating PSU stocks in substantial quantities, confident that ‘Aayega to Modi hi’. The market capitalization of the BSE PSU index has risen by nearly Rs 7 lakh crore during this period, with shares of state-owned companies, now referred to as “Modi stocks,” surging by up to 87%, says an ET analysis.
The list of election season winners is dominated by shares of defence PSUs, which are among the primary beneficiaries of PM Modi’s ‘Aatmanirbhar Bharat‘ policy. During this period, Cochin Shipyard, Bharat Dynamics, and Mazagon Dock Shipbuilders have rallied between 87% and 56%.
Rail Vikas Nigam Ltd (RVNL), Hindustan Aeronautics, HUDCO, REC, Power Finance Corporation, IRFC, and Bharat Electronics are among the other top gainers among Modi stocks. In the past 6 months, all PSU stocks have outperformed the Nifty.
Apart from business fundamentals and growth prospects, a significant portion of this PSU rally is driven by the expectation that Narendra Modi will be re-elected as Prime Minister, with the BJP securing control of anywhere between 300 and 320 seats, says the ET analysis by Nikhil Agarwal.
Also Read | RBI moves 100 tonnes gold from UK to its vaults in India
The continuation of policies favoring infrastructure development, manufacturing, and modernization of railways would be ensured by Modi 3.0.
Vikash Kumar Jain of CLSA notes that despite this anticipation-fueled rally, investors will face a reality check a few weeks after the election, realizing that many of the positives these stocks may have started pricing in will only be realized gradually. This may lead to profit-taking by less patient holders of Modi stocks, he said.
Jain expects this to occur in June or July, before the budget in July, while noting that a similar pattern emerged following the last two elections, when PSU stocks peaked a few weeks after the election results in June.
Also Read | What are ‘Modi stocks’? Global brokerage CLSA has this to say on these ‘outperformers’ ahead of Lok Sabha election results
Market data reveals that in the 2014 election, the PSU index surged 82% in 10 months, while in 2019, PSUs experienced an 18% increase in 7 months.
“The pace of the rally should cool down simply because of the fact that the current prices of most of these stocks are reflecting a 30-40% continuous growth over the next 10 years,” said market advisor Sandip Sabharwal, expressing concern over the valuations of PSU companies.
If the BJP fails to secure a full majority on June 4 and forms a coalition government with NDA partners, PSU stocks could be among the hardest hit, the analysis said.
“While in the long run it is difficult to predict the policy shifts between governments, we believe the previous 10 years of reforms will be difficult to reverse. Nevertheless, it is prudent to diversify portfolios and reduce risks ahead of the election results as the upside could be limited but downside (although the probability of the NDA losing is thin) could be more than 20%,” said Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers.
Also Read | More than Pakistan, Nepal, Sri Lanka combined GDPs! LIC’s assets under management cross Rs 50 lakh crore mark
Emkay Investment Managers, a domestic brokerage firm, has recommended that investors adopt a multi-cap approach with equal exposure to largecaps and midcaps to benefit from broad-based growth in Indian equity markets, as most of the medium-term growth is anticipated to come from the broader markets.
“BFSI, PSUs, and industrials are expected to do well. BFSI has led the earnings growth and seen a correction in valuation. Investment-related themes will come into play with power capex building up in the next 3 to 5 years. We are re-rating public sector units as some of the government entities will have an advantage in sectors such as defence, oil marketing companies and power financers,” said Manish Sonthalia, Chief Investment Officer, Emkay Investment Managers.
The list of election season winners is dominated by shares of defence PSUs, which are among the primary beneficiaries of PM Modi’s ‘Aatmanirbhar Bharat‘ policy. During this period, Cochin Shipyard, Bharat Dynamics, and Mazagon Dock Shipbuilders have rallied between 87% and 56%.
Rail Vikas Nigam Ltd (RVNL), Hindustan Aeronautics, HUDCO, REC, Power Finance Corporation, IRFC, and Bharat Electronics are among the other top gainers among Modi stocks. In the past 6 months, all PSU stocks have outperformed the Nifty.
Apart from business fundamentals and growth prospects, a significant portion of this PSU rally is driven by the expectation that Narendra Modi will be re-elected as Prime Minister, with the BJP securing control of anywhere between 300 and 320 seats, says the ET analysis by Nikhil Agarwal.
Also Read | RBI moves 100 tonnes gold from UK to its vaults in India
The continuation of policies favoring infrastructure development, manufacturing, and modernization of railways would be ensured by Modi 3.0.
Vikash Kumar Jain of CLSA notes that despite this anticipation-fueled rally, investors will face a reality check a few weeks after the election, realizing that many of the positives these stocks may have started pricing in will only be realized gradually. This may lead to profit-taking by less patient holders of Modi stocks, he said.
Jain expects this to occur in June or July, before the budget in July, while noting that a similar pattern emerged following the last two elections, when PSU stocks peaked a few weeks after the election results in June.
Also Read | What are ‘Modi stocks’? Global brokerage CLSA has this to say on these ‘outperformers’ ahead of Lok Sabha election results
Market data reveals that in the 2014 election, the PSU index surged 82% in 10 months, while in 2019, PSUs experienced an 18% increase in 7 months.
“The pace of the rally should cool down simply because of the fact that the current prices of most of these stocks are reflecting a 30-40% continuous growth over the next 10 years,” said market advisor Sandip Sabharwal, expressing concern over the valuations of PSU companies.
If the BJP fails to secure a full majority on June 4 and forms a coalition government with NDA partners, PSU stocks could be among the hardest hit, the analysis said.
“While in the long run it is difficult to predict the policy shifts between governments, we believe the previous 10 years of reforms will be difficult to reverse. Nevertheless, it is prudent to diversify portfolios and reduce risks ahead of the election results as the upside could be limited but downside (although the probability of the NDA losing is thin) could be more than 20%,” said Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers.
Also Read | More than Pakistan, Nepal, Sri Lanka combined GDPs! LIC’s assets under management cross Rs 50 lakh crore mark
Emkay Investment Managers, a domestic brokerage firm, has recommended that investors adopt a multi-cap approach with equal exposure to largecaps and midcaps to benefit from broad-based growth in Indian equity markets, as most of the medium-term growth is anticipated to come from the broader markets.
“BFSI, PSUs, and industrials are expected to do well. BFSI has led the earnings growth and seen a correction in valuation. Investment-related themes will come into play with power capex building up in the next 3 to 5 years. We are re-rating public sector units as some of the government entities will have an advantage in sectors such as defence, oil marketing companies and power financers,” said Manish Sonthalia, Chief Investment Officer, Emkay Investment Managers.
