From Street darlings to sell-off targets, PSUs feel the heat

"Over the last 18 months, the gap between the PSU and their private counterparts had been narrowing as a result of massive rerating fuelled by optimism surrounding the 's development agenda," said Vinit Sambre, Head - Equities, DSP Mutual Fund. "However, the unexpected election result has affected this narrative, leading to a swift unwinding of the positive sentiment that had been built up."

Shares of most public sector companies have been the market favourites in recent times. BHEL, Cochin Shipyard, Mazagon Dock Shipbuilders, , REC and Power Finance Corporation have returned between 150 and 550% in the past year. The run-up in these shares also resulted in their valuations becoming rich.

"PSU stocks were cheaper in the 2019-2020 period and but now valuation have run up significantly in the entire PSU pack, barring few," said Christy Mathai, Fund Manager at Quantum Mutual Fund.

Sambre said that the presence of a government may hinder the implementation of ambitious "Sectors (PSUs and non-PSUs) that previously enjoyed inflated valuations due to expectations of strong reform-driven may experience some downward pressure on valuations," he said.

Some analysts said investors must tone down their bullishness on PSU stocks but they cannot be written off. "Incase of a NDA coalition government, the growth in PSUs could continue but at a slower pace, and we remain slightly less bullish than before in that case," said Deepak Jasani, Head of Retail Research at HDFC Securities.