PSU stocks surged up to 2-6% today after the astounding victory and decisive verdict of the BJP-led Mahayuti alliance in the Maharashtra Assembly Elections. Shares of oil company Oil India are trading 2.06% up, while GAIL is trading 3.72% higher. Coal India shares are also trading 2.44% higher and BHEL shares are trading 3.89% up. Shares of other PSUs like Power Finance Corporation (3%), IRFC (3.55%), Bharat Electronics (5.93%), RVNL (5.46%) and NBCC (India), all were trading in the green.
The trend was in line with broader market indices BSE Sensex and Nifty trading 1.57% and 1.67%, respectively. The PSU stock rally can be seen in the context of Assembly Election Results in Maharashtra, where continued stability of the state government and BJP-led government at the Centre could now boost capital spending, especially bringing a renewed focus on infra development.
In a historic mandate, the ruling Mahayuti alliance of the BJP, Shiv Sena (Eknath Shinde faction), and NCP (Ajit Pawar faction) secured 233 of the state’s 288 assembly seats, at a strike rate of nearly 81%.
Brokerage Motilal Oswal, in its latest report on the poll results, says the victory of the ruling NDA alliance in Maharashtra should bring the undercurrents back in the markets. "For Maharashtra, the last five years were characterised by political instability, with frequent musical chairs at work for the CM post. This decisive verdict ends the chronic instability in one of India’s most industrialised and economically important states."
The brokerage house says with elections now behind and the BJP getting a strong boost from the Haryana and Maharashtra elections, there are expectations that the government will focus on spending (1HFY25 govt. spending is flat YoY and is down 17% for Capex spending).
"This poll result, coupled with a recovery in rural spending (on the back of good monsoon and expected strong Kharif output) should improve the demand narrative at the margin. The wedding season in 2HFY25 (30% higher weddings YoY) will also provide a fillip to demand."
The brokerage also expects a modest recovery in corporate earnings in H2 FY25E. "The change in sentiment can initiate a mini risk-on rally, in our view. Given the recent correction, we believe valuations, especially for large caps, are quite reasonable now at 19.3x FY26EEPS. Midcaps and Smallcaps are still trading at expensive valuations, with NSEMidcap 100/NSE Smallcap 100 trading at a P/E of ~30x/~23x. The volatile geopolitical backdrop and movement in the dollar index will be the near-term monitorables."
The brokerage has marked BFSI (private as well as PSU and non-lending NBFC), capital goods, real estate, manufacturing, consumer discretionary, IT, and healthcare as preferred sectors.
