Will 2024 Lok Sabha Polls Add To PSU Stocks' Dream Run?

India's top performing index of 2023 may have another leg of outperformance left, driven by strong macro fundamentals, an expectation of political continuity, and an eye on the post-election budget.

Despite the biggest pre-election run-up in two decades, the PSE index outperformed the benchmark Nifty 50 in 2023.

The index grew to over double its initial level, as against a rise of 20% in the Nifty 50.

Benefiting from a growing focus on government-led capital expenditure, public sector enterprises in the railways, defence and fertiliser sectors had been among the top themes in focus.

This outperformance, however, may not be a one-off. The index also mirrored this performance in the past pre-verdict periods.

In 2014, during the two-month run-up to the general elections' result announcement, the Nifty PSE rose over 22%.

This surge in the index was accompanied by an outperformance among stocks in the railways and defence sectors.

Public sector undertakings in the railways and defence sector grew nearly fourfold over the PSE index, while fertilisers rose as much as 31%.

The pre-election period in 2019, however, saw gains of less than 1% in Nifty PSE, along with some mixed returns while most stocks declined.

Growing nearly 20% year-to-date could flag a continued uptrend for PSEs.

As markets continue to rise on the back of strong macro indicators and record high flows into equities, India's key theme last year may have another leg.