Mumbai: Shares of public sector companies once the favourites among retail investors over the past two years, have recently faced a sharp sell-off driven by unrealistic valuations, sluggish earnings, and delays in order executions.

Nineteen out of 64 non-banking stocks have plunged between 40% and 55% from their yearly highs, while another 28 have declined by 30% to 40%. Overall, 64 state-owned corporates have lost nearly ₹8 lakh crore in market capitalisation since August 1, the day the BSE PSU index hit an all-time high.

Analysts believe that even after these steep corrections, PSU stocks are unlikely to rebound in the near term due to a lack of growth visibility. “Although the reduction in stock premiums provides some valuation relief, volatility is still possible due to the slow improvement in execution, earnings, and government spending,” said Anwin Aby George, research analyst at Geojit Financial Services. “A swift recovery is not expected as execution is expected to improve gradually.”

Stocks like MTNL, Cochin Shipyard, Garden Reach, Shipping Corporation of India, HUDCO, MMTC, KIOCL, Engineers India, MOIL, Bharat Immunologics, MSTC, and Bharat Dynamics have all fallen between 40% and 55% from their 52-week highs.

“The sharp run-up in these stocks wasn’t supported by earnings in the last two quarters, and companies in the capital goods and defence sectors faced execution challenges. Growth has also been lacklustre for banks struggling with low-cost deposits,” said Siddarth Bhamre, head of research at Asit C Mehta Investment Intermediates. “We’re now seeing a reversion to the mean in PSU valuations, and we recommend reducing exposure to this space.”

PSU stocks had seen a significant re-rating over the past two years due to an improved outlook, driven by a focus on boosting domestic manufacturing and reducing import dependency. Sectors such as electronics, railways, defence, pharmaceuticals, and chemicals were major beneficiaries of increased government spending.