PSU stocks tumble from all-time highs - is it time to reconsider or is it an investment opportunity?

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Subscribe to enjoy similar stories. Stocks of public sector undertakings that have enjoyed a phenomenal rally since the pandemic now face a reality check. These shares have toppled 21-82% from their all-time peaks, raising concerns about whether the party is over.

While PSU stocks shave had their share of struggles, their fundamentals have seen a major transformation. Once bogged down by balance sheet stress and sluggish growth, many government-owned companies now stand on a firmer footing, market participants said. The broader view? The fall isn’t a setback—it’s a window for investors to accumulate quality stocks with long-term growth potential.

Ranju Rajan, head of managed accounts at Axis Securities PMS, said there is a potential opportunity in select PSU stocks from a valuation perspective. He backed up his point with a key data nugget. As of 31 January, 14 of the top 500 companies were near their 52-week highs, down from 141 in September.

Meanwhile, 73% of the stocks were more than 20% below their highs, with 42% having fallen more than 30%. This signals broad profit booking, though large caps remain attractive for long-term investors. Among 55 PSU stocks, none is near its high, a sharp drop from 35 in February 2024, Rajan pointed out.

A slower-than-expected financial performance and high valuations led to profit booking in PSUs, causing the Nifty PSE Index to decline by 26% from its August 2024 peak, said Vinit Bolinjkar, head of research at Ventura Securities. “At its peak, the index traded at 13 times P/E, significantly above its long-term average of 10x. Following the correction, valuations have normalized to 10.7x CY25 P/E, close to historical levels," he explained.