Will the PSU stock rally continue post-budget?

Shares of public sector undertakings (PSUs) have seen a stupendous rally in the five years that the Bharatiya Janata Party (BJP)-led National Democratic Alliance government has been in power, with persistent capex in growth verticals such as railways, infrastructure, power and defence. This rally across the PSU pack will in the immediate future be determined by the upcoming interim budget, given the government’s capex allocation for each pocket, said analysts.

PSU stock

However, they warned investors to exercise caution while putting their money in these state-controlled entities as valuations in some stocks look overheated compared with their private peers. In the past one year, one out of every three PSU stock has more than doubled, helping the BSE PSU Index surge over 65 percent.

Shrikant Chouhan, head, equity research at Kotak Securities, expects this rally to extend but become more stock-specific once the budget capex outlay is announced. He said that investors’ confidence in the PSU pack increased after the state election results reinforced the expectation of stable government formation.

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