Mutual Funds Shed ₹90,000 Crore in PSU Stocks Amid Election Market Dip

The unexpected election results in India have sent shockwaves through the stock market, with mutual funds bearing a significant brunt of the impact. Over the last two trading sessions, these investment vehicles witnessed a staggering loss of ₹90,000 crore in the market value of their holdings in public sector undertakings (PSUs). This erosion in value directly resulted from the sharp market correction triggered by the poll verdict, which deviated from the exit poll predictions.

The Sector-wise Breakdown

As of June 3, mutual funds held shares worth over ₹5.71 lakh crore in 84 state-run firms. However, the unexpected election outcome caused this value to plummet to ₹4.83 lakh crore, a jaw-dropping decline of ₹90,000 crore.

The State Bank of India (SBI) took the biggest hit, with mutual funds' holding in SBI shares dropping from ₹90,440 crore on June 3 to ₹77,400 crore on June 4, a decrease of ₹13,040 crore. NTPC Ltd followed closely, with mutual funds' holding value declining by ₹10,625 crore, from ₹68,780 crore to ₹58,157 crore.

Other major PSU holdings that suffered significant losses included:

• Power Grid Corp (₹8,275 crore).
• Coal India (₹4,400 crore).
• Power Finance Corp (₹4,665 crore).
• REC (₹4,500 crore).
• ONGC (₹5,490 crore).

The Broader Impact on PSU Stocks

The impact of the election outcome extended far beyond mutual fund holdings. As of June 5, PSU stocks' share in the total market capitalization dropped to a six-month low of 13.1%, down from a seven-year high of over 16% in May. Indian-listed PSU firms collectively lost nearly Rs 10 lakh crore in market capitalization over the last two sessions, bringing their total market cap to ₹55 lakh crore.

The Driving Forces Behind the Decline

Experts attribute the sharp correction in PSU stocks to the market's reassessment of the sector's prospects following the election outcome. Deepak Jasani, Head of Retail Research at HDFC Securities, noted that PSUs thrived under the current government due to increased operational freedom, enhanced revenue visibility, support for exports, and expectations of gradual divestment. However, uncertainties surrounding the new political landscape regarding government support for these firms have arisen.

Looking Ahead: Opportunities and Challenges

While the recent fall in PSU stocks occurred after they were overvalued, prompting a revision to the mean, some sectors within the PSU space still hold promise. PSU banks, for instance, seem promising, while other stocks may attract rotational interest. However, clarity from the next budget, which will determine government spending in sectors like railways, ports, and capital goods, will be crucial in influencing investment decisions in PSU stocks.

As the dust settles on the election outcome, investors will closely monitor the formation of the new government and its policy priorities, ultimately shaping the future trajectory of PSU stocks and the broader market.