Modi effect: PSU stocks surge to record highs

Stocks of public sector units (PSUs) and state-owned companies from Gujarat are surging on the bourses, courtesy the Modi effect. Shares of more than a dozen Central government PSUs and companies promoted by the Gujarat government hit their 52-week highs on Tuesday. The BSE PSU index has soared 13.7% in the past week alone — the best performance among sectoral and benchmark indices.
Shares of PSU behemoth BHEL have jumped 27% in the last one week.PSUs such as NTPC, NMDC and Power Grid Corporation have also seen a sharp increase in their share prices. Shares of Gujarat PSUs rallied sharply in the run-up to the general elections after opinion polls predicted the BJP is within striking distance of capturing power. With Narendra Modi all set to take over as Prime Minister, the rally in PSU stocks has gathered further momentum.
“Most of the PSU stocks have been quoting at discounted valuations,” said Deven R Choksey, managing director, KR Choksey Shares and Securities. Vikram Dhawan, director, Equentis Capital, said, “Markets usually give a discount to PSU stocks. This is more of a management discount.” PSUs are perceived to have management teams that are not considered to be in the same league as their private sector peers, he added.
The deterioration in the business environment also impacted the sector. For instance, NTPC’s valuation was lower than the capacities it created as power plants were remaining idle due to lack of coal, Choksey said.

With a stable government, these companies would get back to normal business, which has led to the re-rating, say market observers.