NDA is back with a caveat; how will Modi-favoured PSU stocks fare now?

"While the long-term outlook remains bullish, there is a possibility of short-term profit booking or consolidation, as much of the optimism is already reflected in current prices," said Santosh Meena, Head of Research at .

However, sees a different picture in the short term, expecting even a derating. The brokerage counted PSUs among the most vulnerable sectors, from which it would stay away for the time being.

This comes after the below-than-expected performance of dealt a heavy blow to , which was down as much as 15% on Monday as results started trickling in. The sell-off was seen across the board where names like , , , Power Finance Corp, Nalco, IRCTC lost over 15%.

Looking slightly back, Atmanirbharta or self-reliance has been one of the biggest mantras of PM Modi, paving way for marked improvement in PSUs performance in the recent past.

Taking heart the Modi government backing, PSUs have proved their mettle by focusing on operational efficiencies over the past few years, improving the execution and financial track record, professional management, and strategizing on future growth potential.

The BSE PSU index is up nearly 200% in the last five years and just this election season, the "", as categorised by various analysts, have generated a massive wealth of Rs 7 lakh crore for investors.

The significant upward rally in the previous years, despite raising concerns about valuations, are not significant enough for investors to completely look the other way once the election outcome dust is settled.

"Though many themes and stocks in the PSU basket have delivered multi-bagger returns, we do not find valuation too expensive vis-à-vis their earnings potential and valuation of private listed players," said Manish Chowdhury, Head of Research, StoxBox.

"Investors should evaluate individually rather than as a homogeneous group. It may be prudent to exit stocks with low float where earnings do not justify current valuations. However, there are still promising opportunities within certain segments that are likely to continue performing well," Meena says.

Foreign brokerage CLSA said notwithstanding the anticipation-fuelled rally in the last few months, a few weeks after the election, investors will be confronted with a reality check that many of the positives these stocks may have started baking-in will be realised only in a gradual manner.

"This may drive profit-taking by the less patient holders of Modi stocks. Something similar happened following the last two when topped-out a few weeks after the election results in the month of June. We expect this in June or July, before the budget in July," it said.

The preferred BUYs for CLSA India analysts among the PSU pack are ONGC, NTPC, NHPC, SBI, Power Finance, IGL and Mahanagar Gas in the PSU space.

Santhosh Meena of Swastika Investmart likes Bharat Electronics Ltd (BEL) and State Bank of India (SBI) in the PSU space as the outlook for both the companies remains promising.

"BEL exceeded expectations in its fourth quarter results. The up-fronting of order inflows contributed to an overall beat in the company's order book, further bolstering its prospects. Similarly, SBI is another strong contender in the PSU space. The stock still offers valuation comfort in the financial sector and is showing strong earnings momentum," Meena said.

"With a relatively low float of shares and robust growth outlook, we sense opportunities across the broad spectrum of PSUs including power, energy, banking, railways, defence and manufacturing. We believe that OMCs and energy companies have the potential to get re-rated in the third term of the Modi government and we continue to like BPCL, Oil India, GAIL and LNG Petronet from a medium to long term perspective," added Chowdhury.

(With inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)