HAL, IRFC, BHEL stocks fall: Here’s why PSU stocks are under pressure

Public Sector Undertaking (PSU) stocks across the defence, railway, and non-banking financial company (NBFC) sectors took a hit today, with shares falling by as much as 6%.
This comes even as India’s benchmark indices, Sensex and Nifty, rose on the back of higher-than-expected interest rate cuts by the US Federal Reserve.
The selling in PSU stocks was broad-based, with many seeing price corrections due to concerns about high valuations and a shift in investor focus to other market segments.
A majority of the PSU stocks, especially from the defence and railway sectors, were under pressure.
Out of 59 stocks in the PSU index, only 4 were trading higher today. Shares of Oil India fell by 5.92%, ending the day at Rs 559.55.
Hindustan Aeronautics Ltd (HAL), a key defence stock, saw a 4.61% drop, closing at Rs 4,232 on the Bombay Stock Exchange (BSE). As a result, the BSE PSU index dipped by 1.5%.
Ajit Mishra, Senior Vice President of Research at Religare Broking Ltd, explained, “The PSU basket has seen a remarkable rally in recent years, and many stocks are now undergoing a natural correction. This is likely to continue for some time.”
Several other major PSU stocks saw sharp declines. BEML Ltd fell by 4.95% to Rs 3,564, while Bharat Dynamics Ltd and Cochin Shipyard Ltd each dropped by 5%. REC Ltd’s share price dipped by 4% to Rs 523.70, and Power Finance Corporation (PFC) declined by 3.5%, closing at Rs 473.80.
Nalco, MRPL, HUDCO, Indian Railway Finance Corporation (IRFC), Bharat Heavy Electricals Ltd (BHEL), and GAIL all saw their shares drop by more than 3%. Other companies such as Mazagon Dock Shipbuilders, SAIL, IRCON International Ltd, and IRCTC were also down by up to 3%.
Analysts believe that the sharp fall in PSU stocks can be attributed to their high valuations. Many companies in sectors like defence, railways, and capital goods had rallied in recent years, driven by expectations of strong earnings growth. However, these high valuations are now leading to price corrections.
Mishra from Religare Broking further said, “Sectors such as defence, railways, and capital goods are trading at high valuations, which are based on expectations of strong earnings growth. Investors need to be cautious because if these expectations are not met, it could negatively impact stock valuations.”
Many of the PSU stocks that fell today are part of the midcap and smallcap segments of the market, which have been under pressure lately. In contrast, largecap stocks have been performing better, as investors are now shifting their focus toward these more stable and less volatile companies.
Neeraj Chadawar, Head of Research at Axis Securities, commented on this shift, and said, “We believe that rotation between sectors and investment styles plays a key role in generating returns. Midcaps and smallcaps have done well in the last couple of months, but their margin of safety has decreased compared to largecaps. This could lead to a correction in certain areas of the broader market, with more investment flows moving towards largecap stocks.”
Santosh Meena, Head of Research, Swastika Investmart Ltd said that the midcap and smallcap segments, particularly sectors like defense, railways, and capital goods, which have performed exceptionally well over the past 2-3 years, are now witnessing a sharp correction.
“Valuations have long been a concern in the broader market, yet these stocks continued to rally despite being considered expensive. However, there always comes a point when market euphoria fades. Domestic institutions, too, have shown signs of caution, holding significant cash reserves at elevated levels. I believe this correction could extend further, presenting a strong buying opportunity in high-quality stocks for long-term investors,” he added.
In the near term, investors seem to be positioning themselves more towards defensive sectors. This includes largecap private banks, telecom, consumer goods, information technology (IT), and pharmaceuticals.
These sectors are seen as safer bets, providing more stability and less risk in the current market environment.
Chadawar added, “Some of the market is shifting towards defensive names in the near term. Largecap private banks, telecom, consumption, IT, and pharma provide more safety right now compared to the cyclical sectors.”