BJP seat wins, Modi stocks: 2,150% jump in 4 years! Will election results be make or break deal for PSU shares?

A total of 52 BSE PSU index stocks multiplied their market capitalisation (m-cap) by nearly 5 times in the past 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 delivered 1,000-2,150 per cent returns in the four-year period, with the worst (Bharat Petroleum Corporation Ltd) delivering 82 per cent return in the period mentioned. (Table below)

It is believed that PSU stocks should continue to deliver healthy returns if the NDA retains power in the ongoing elections. A derating is likely in case there is a negative surprise, analysts said.

Nikunj Saraf, Vice President at Choice Wealth noted that PSUs often play a significant role in the Indian economy, and their fortunes can be tied 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 favorable to their growth and profitability.

In the case of defence sector, for instance, the BJP government has placed a strong emphasis on national security, which includes bolstering the country's defense capabilities. "Increased defense spending, modernization initiatives, and a push for indigenous defense production could benefit companies operating in this sector. Favorable policies, such as higher defense budgets and incentives for domestic defense manufacturing, could create opportunities for defense-related companies," he noted.

If the BJP falls short of a majority but secures control of the government with the help of NDA allies, a sell-off in highly valued domestic-oriented sectors like PSUs, industrials and infrastructure, Saraf said.

Data showed the 52 PSUs commanded Rs 56,86,553 crore m-cap on Thursday against Rs 11,94,420 crore, four years ago, up 4.76 times.

In case, NDA fails to form the government, probability is thin though, the market may fall 20 per cent and will take time to fully recover, said Jitendra Gohil, Kotak Alternate Asset Managers."This unexpected outcome may trigger a major sell off in PSUs, capital goods, manufacturing (especially PLI scheme related sectors), defence related stocks," he said.

Amnish Aggarwal, Head - Institutional Research, Prabhudas Lilladher PSU stocks sectors such as railways, defence and BFSI will react favourably if NDA comes to power. But, they could get derated if INDIA Alliance comes to power, he added.

CLSA in its latest note identified 54 companies which are perceived as direct beneficiaries of PM Modi’s policies and half of these are PSUs.

Despite coming from varied sectors, all of the 27 PSU stocks from the F&O space have beaten the Nifty over
the last six months, CLSA said. Among Modi stocks, CLSA India analysts has PSU stocks such as ONGC, NTPC, NHPC, SBI, Power Finance, IGL and Mahanagar Gas as their preferred PSU buys.

"Remarkably, 90 per cent of Modi stocks have beaten the Nifty in the election-focused rally over the past six months versus only 42 per cent of the other companies outperforming. This may continue in the case of a strong election result. L&T, NTPC, NHPC, PFC, ONGC, IGL, MAHGL, Bharti Airtel, Indus Towers and Reliance are the preferred Modi stocks," CLSA said this week.