BJP wins seat, Modi shares: 2150% jump in 4 years! Will the election results determine the fate of PSU shares?

A total of 52 BSE PSU index companies have multiplied their market capitalization (m-cap) by almost five times in the last four years. At least eight PSU stocks, namely Rail Vikas Nigam Ltd, Hindustan Aeronautics Ltd, Cochin Shipyard Ltd, Hindustan Copper Ltd, Indian Bank, Bharat Dynamics Ltd, Bharat Electronics Ltd and Housing & Urban Development Corporation Ltd, have delivered returns of Rs. -2150% in four years, with the worst (Bharat Petroleum Corporation Ltd) providing 82% return in the said period. (Table below)

It is believed that PSU stocks are expected to continue generating solid gains if the NDA remains in power in the ongoing elections. Analysts say that in the event of a negative surprise, a derate is likely.

Nikunj Saraf, vice president, Choice Wealth, noted that PSUs often play a significant role in the Indian economy and their fate can be linked to government policies and directives. Depending on the BJP’s stance towards PSUs, investing in these stocks could be beneficial if the government adopts policies that are favorable for their growth and profitability.

For example, in the defense sector, the BJP government has placed great emphasis on national security, which includes strengthening the country’s defense capabilities. “Increased defense spending, modernization initiatives and an emphasis on domestic defense production could benefit companies operating in this sector. Favorable policies such as higher defense budgets and incentives for domestic defense production can create opportunities for defense-related businesses,” he noted. .

If the BJP fails to win a majority but secures control of the government with the help of NDA allies, it will mean a sell-off in highly valued home-oriented sectors such as PSUs, industrials and infrastructure, Saraf said.

The data showed that 52 PSUs on Thursday had an m-cap of Rs 56,86,553 crore compared to Rs 11,94,420 crore four years ago, a 4.76-fold increase.

If the NDA fails to form the government, however, the probability is low, the market may fall by 20 per cent and it will take time to fully recover, said Jitendra Gohil, Kotak Alternate Asset Managers. “This unexpected outcome may trigger severe sell-off in PSUs, capital goods, manufacturing (especially PLI scheme related sectors), defense related stocks,” he said.

Amnish Aggarwal, Director, Institutional Research, Prabhudas Lilladher PSU equity sectors such as railways, defense and BFSI will react favorably if NDA comes to power. However, he added that if the INDIA Alliance comes to power, they may be reduced.

CLSA in its latest note has identified 54 companies that are seen as direct beneficiaries of Prime Minister Modi’s policies, half of which are PSUs.

Despite being from different sectors, all the 27 PSUs in the F&O space beat the Nifty by over
over the past six months, CLSA said. Among Modi stocks, CLSA India analysts favor PSU stocks such as ONGC, NTPC, NHPC, SBI, Power Finance, IGL and Mahanagar Gas.

“Interestingly, over the last six months, 90 per cent of Modi stocks have outperformed the Nifty index in the election-centric rally, compared to just 42 per cent of other stocks that have outperformed. This situation may continue in the event of a good election result. L&T, NTPC , NHPC, PFC, ONGC, IGL, MAHGL, Bharti Airtel, Indus Towers and Reliance are Modi’s preferred stocks,” CLSA said this week.