PSU Stocks: Once the Darling of Rookie Investors, Now Wiped Out of Rs 13 Lakh Crore Market Cap (Are they Down for the Count?)
Once the darlings of rookie investors, PSU stocks have seen a staggering Rs 13 lakh crore wiped out of their market capitalization. This significant decline represents a reversal of the sentiment-driven meteoric rise they experienced throughout 2023 and much of 2024. It marks a return to reality as the government’s narrative on capital expenditure shifted, and the true picture of underlying businesses in sectors such as banking and shipbuilding became apparent.
The Blistering Growth of CPSE Stocks
The post-pandemic period saw remarkable growth for India’s stock market, with the Sensex rising nearly 60 percent between January 2020 and June 2023. During this period, the CPSE index of the Bombay Stock Exchange, which captures the stock prices of listed public sector companies, also saw a significant uptick.
A Shift in Narrative
However, this growth was not sustainable, and the narrative began to shift. By October 2024, the market had started to correct itself, with public sector bank stocks taking a beating, falling 20-30 percent from their peaks as the reality of falling profitability dented the prevailing narrative that public sector banks were thriving. This trend has since intensified, with several public sector bank stocks now down nearly 40 percent from their peaks.
Construction and Defence Stocks in the Red
The defence and construction sectors were also hit hard, as their stocks declined in tandem with the correction. Defence stocks, particularly those receiving shipbuilding orders, fell by 20-60 percent since their peaks last year. For example, Cochin Shipyard has seen its stock price decline by 52 percent since July 2024, while Mazagon Dock Shipbuilders has suffered a 59 percent drop. Garden Reach Shipbuilders & Engineers saw its stock price fall about 47 percent since July 2024.
The Policy Shift
The reason for this decline is the same as in October 2024 – new investors, buoyed by the government’s "Make in India" announcements for the defence sector, are now facing the reality of project delays and falling profitability. Additionally, the government’s policy shift regarding capital expenditure has also played a role. However, the government’s announcement of only a minor increase in the capital expenditure budget for the next fiscal year has further dampened investor spirits, leading to a significant decline in PSU stocks.
What’s Next?
The future of PSU stocks is uncertain, to say the least. The government’s policy shift and the reality of falling profitability are likely to continue to weigh on the sector. However, as the market corrects itself, there may be opportunities for savvy investors to pick up undervalued stocks. Only time will tell whether PSU stocks will be able to recover from this significant decline or if they are, indeed, down for the count.
Conclusion
Once the darlings of rookie investors, PSU stocks have seen a staggering Rs 13 lakh crore wiped out of their market capitalization. The trend is clear – the government’s narrative on capital expenditure has shifted, and the true picture of underlying businesses in sectors such as banking and shipbuilding has become apparent. As the market corrects itself, investors would do well to exercise caution and carefully evaluate the prospects of these ailing stocks (Are they Down for the Count?).
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