This profit-taking is a healthy sign for the market, reflecting discomfort with overvalued stocks. The recent sharp gains in certain stocks led to substantial corrections in the last few sessions
February 12, 2024 / 07:43 PM IST
Palviya expects 1-2 more trading sessions of profit-taking, but a rebound is likely once the market settles at a certain level and shows broader health
The sharp fall in PSU stocks has caused significant wealth erosion for the government, institutional, non-institutional and individual investors in the last three sessions.
Government holdings in PSU stocks, ranging from 30-90 percent, have seen a wealth erosion of around Rs 3.79 lakh crore. While institutional investors have lost around Rs 93,590 crore, non-institutional investors have seen a market cap erosion of about Rs 45,300 crore; and individual holders (with combined holdings of both up to Rs 1 lakh and exceeding Rs 1 lakh) have seen their wealth decline by about Rs 36,440 crore in the last three sessions.
PSU stocks have been on an upward trend since 2021, with the BSE PSU index experiencing gains for three years in a row: 41 percent in 2021 (CY); 23 percent in 2022, and 55.3 percent in 2023.
These stocks have proven to be significant wealth creators for the investors in the past three years. While some analysts justify the re-rating of state-owned companies, others are now turning skeptical.
"This profit-taking is a healthy sign for the market, reflecting discomfort with overvalued stocks. The recent sharp gains in certain stocks led to substantial corrections in the last few sessions. Despite market discomfort with high valuations, euphoric buying persisted, overlooking fundamentals. December quarter earnings revealed profitability contractions in some midcap PSU stocks, prompting caution," said Rajesh Palviya, analyst at Axis Securities.
Palviya expects 1-2 more trading sessions of profit-taking, but a rebound is likely once the market settles at a certain level and shows broader health. He anticipates a 5-10 percent correction, making the sector's attractive valuations draw fresh buying interest.
Meanwhile some analysts say that not all PSU stocks may regain post-correction. Themes such as railway, power, defense, and oil and gas, with high visibility and government support, will likely attract buying. Stocks without significant announcements may consolidate.
Analysts further said overall, the economy looks robust, suggesting a bullish market direction. Once the market recovers, PSU stocks may regain momentum. Those who bought at higher levels should wait for supply pressure to ease, assess their stocks, and consider averaging down in sectors with strong traction like defense and oil & gas, analysts added.
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