RVNL, MTNL, SBI, Garden Reach, PNB: PSU stocks are falling from their highs; should you buy or avoid?

A social media post by Virender Sehwag on September 19 on the performance of the stocks of public sector undertakings (PSU) brought the weakness in state-owned companies into the limelight once again. In his post, the former cricketer said that shares of PSU banks—including Canara Bank, Bank of Baroda and Union Bank—bought by a member of his staff declined more than 20% even as the market is hovering at record high levels. However, he immediately deleted the post.

This makes a case to zero in on the PSU pack. Data shows that more than 90 companies in the pack have fallen in double digits from their respective 52-week high levels. With a fall of 48%, shares of MTNL declined to Rs 52.95 on September 19, 2024, from its 52-week high of Rs 101.88, scaled on July 29, 2024.

It was followed by Gujarat State Financial Corporation, Cochin Shipyard and Garden Reach Shipbuilders & Engineers which also declined more than 40% from their respective 52-week high levels.

When asked why PSUs are falling? Trivesh D, COO, Tradejini said, “Public sector enterprises have experienced a remarkable rally over the past year, with several stocks showing significant price increases. However, the sector is now entering a phase of consolidation and correction.  I would advise investors to look elsewhere for the time being as I expect further corrections in the upcoming weeks.” The BSE PSU index, which gained 119% in the last two years, lost 11% so far from its 52-week high of 23,018.87, hit on August 1, 2024. Market watchers believe that the government’s focus on infrastructure and manufacturing sectors helped PSUs in the recent past.

Among the other major losers, shares of Dredging Corporation of India, MSTC, Shipping Corporation of India, Tourism Finance Corporation of India, Bharat Dynamics, Ircon International, MOIL, Mangalore Refinery And Petrochemicals and Bharat Immunologicals & Biologicals Corporation also declined somewhere between 35% and 40% so far from their respective 52-week high levels.

Vinod Jhaveri, Independent Analyst, Pure Technicals said, “Nifty PSU Bank index had a dream run from March 2023 to June 2024 from 3,520 to 8,050, an ROI of 128%. The index have since corrected by 19%. Technically it’s tested the 50-week moving average at around 6,500. As per chart structure, the index is ready to bounce from these levels.”

He added that one can start looking at well-managed PSU banks to capitalise on the upmove that can begin after a good healthy correction. Some of the PSU banks including UCO Bank declined 32.80% so far from their 52-week high levels. Indian Overseas Bank, The Jammu & Kashmir Bank, Bank of India, Punjab & Sind Bank, Union Bank of India, Punjab National Bank, Central Bank of India and State Bank of India declined somewhere between 13% and 32% from their 52-week high levels.

Trivesh D of Tradejini said, “Currently, we are not bullish on any PSU stocks, as current prices appear inflated and disconnected from their true intrinsic value.”

Data further highlighted that select railway stocks also declined over 20% from their 52-week high levels. This includes Rail Vikas Nigam Limited (down 21%), Indian Railway Finance Corporation (down 23%), IRCTC (down 23%) and Railtel Corporation of India (down 27%)

Himanshu Kohli, Co-founder of wealth management firm Client Associates also told Business Today that the momentum in the PSU stocks will not continue as the focus now will be more on quality stocks that offer growth at a reasonable price.