With stocks of public sector undertakings declining the most as markets pared gains after a record-breaking rally, analysts have warned of inflated valuations and unsustainable price inflation."These sorts of rallies in both public sector and in government capex are rarely sustainable," Saurabh Mukherjea, founder and chief investment officer at Marcellus Investment Managers, told BQ Prime. "That's why I think a degree of caution is warranted."These shares pared their accumulated gains, trading as much as 11.4% below their closing price on Monday, after the NSE Nifty 50 reached the 20,000 milestone.Stocks of railways PSUs have fallen since Monday, with shares of Rail Vikas Nigam Ltd. dropping as much as 9.3%.Defence PSUs also tumbled. Shares of Garden Reach Shipbuilders and Engineers Ltd. have been down 11.43% since Monday.Among PSU stocks, those with operations relating to railways and defence benefitted the most from the bullish run since the beginning of the financial year.Titagarh Rail Systems Ltd. gained the most among railway PSU stocks, by rising to over twice its initial value since the beginning of the fiscal.Among PSUs with operations relating to the defence sector, Mazagon Dock Shipbuilders Ltd. has gained over 242% since April 1."Defence spending is going to grow a lot," said Prashant Khemka, founder at White Oak Capital Management Ltd.Domestic players will play a large role in defense spending, and within that, the private sector will play a major role, he said. "But is that entire opportunity going to be captured by the same set of listed companies that are there right now? (That) remains to be seen," he said.While stocks have pared some gains from their initial rally, is an upside likely? Here's what analysts tracked by Bloomberg suggest:Most railway PSU stocks remained above the 12-month consensus price targets, according to analysts tracked by Bloomberg. Titagarh Rail Systems Ltd. and Container Corp. of India Ltd. still had a potential upside remaining at 5.2% and 1.3%, respectively.Most defence PSUs have a potential upside remaining, according to Bloomberg data. Bharat Dynamics Ltd. had an upside of 15.5% remaining to its current trading price, with six out of eight analysts recommending a 'buy' rating on the stock.Helios Capital's Samir Arora On The Rise In Railway, Defence Stocks