PSU stocks slide to 15-month low amid weak earnings and selling pressure

Public sector undertaking (PSU) stocks have taken a sharp hit, reaching their lowest market share in 15 months amid sustained selling pressure. As of February, PSU stocks accounted for 14.61 percent of the total market capitalisation of all BSE-listed firms, down from 17.77 percent in May 2024 and marking the lowest level since November 2023.

The collective market capitalisation of 103 listed PSU firms stood at Rs 57.43 lakh crore in February, a significant decline from its peak of Rs 81.38 lakh crore in July. The market cap stood at Rs 64.88 lakh crore in January and Rs 66.34 lakh crore in December, reflecting a steady downtrend.

The downturn has been broad-based, with seven PSU firms plummeting over 60 percent from their 52-week highs. Another 28 stocks have corrected between 50 and 59 percent, while 34 companies have seen declines of 40 to 50 percent. Meanwhile, 32 PSU stocks have recorded losses ranging from 20 to 40 percent.

Market experts attribute the steep decline to disappointing Q3 FY25 earnings and stretched valuations. Lower order inflows in defence and railways have dampened growth prospects. Following a prolonged rally, investors have engaged in profit booking, further pressuring stock prices. Weak earnings visibility and reduced government spending have added to the sector’s volatility.

Additionally, investor sentiment has shifted towards private sector stocks in banking, IT, and consumption, leading to a decline in PSU stock demand. Despite attractive valuations in certain cases, broader market sentiment remains cautious, with risks tilted to the downside.

Mayank Mundhra, FRM- VP Risk & Head Research at Abans Group, highlighted that the Union Budget 2025 contributed to the bearish sentiment by slowing capital expenditure growth. "The government allocated Rs 11.21 lakh crore, which fell short of market expectations, especially for sectors like railways. This weakened investor confidence as markets had anticipated a more aggressive push in infrastructure, defence, and railways," he noted in a moneycontrol report.

Several PSU stocks have seen sharp corrections. Dredging Corporation of India has plunged 65 percent, followed by Chennai Petroleum Corporation, which is down 64 percent, and MMTC, which has declined 62 percent. Other major laggards include Shipping Corporation of India, Hindustan Organic Chemicals, and Ircon International, each falling slightly over 60 percent.

The Nifty PSE Index has shed nearly 32 percent from its peak, reflecting persistent bearish momentum. Analysts observe that the index is trading below short-term and medium-term moving averages on weekly charts, indicating continued selling pressure. Key support is seen at the 7,800 level, with a potential drop to 7,200–7,000 if it breaches this mark. A reversal would require a decisive breakout above 9,500, they added.

Hardik Matalia, Derivative Analyst at Choice Broking, advises investors to be selective in their approach. "Long-term investors may find value in fundamentally strong PSU stocks like BEL, HAL, and NTPC. However, traders should wait for stability before entering new positions," he stated.

He also emphasised that monitoring foreign institutional investor (FII) activity, government policies, and global market trends would be key in determining whether the PSU sector can regain strength.

As PSU stocks navigate turbulent market conditions, analysts suggest adopting a sell-on-rise strategy around the 8,700–9,000 range while remaining watchful for signs of market stabilization before making fresh investments.