Kotak Institutional Equities' analysts believe that despite the recent correction, there is a huge gap between real value and current market capitalisation of “narrative” investment and public sector stocks. 

What The Analyst Said: Kotak said the recent correction in narrative stocks in sectors like railways, defence and power sector is due to shift in global sentiment to risk-off mode and a preference for defensive stocks like consumer staples and IT, which have supported the benchmark indices and a possible shift to stock fundamentals.

Despite this the overall sentiment is euphoric, the research firm said, pointing to to frothy valuations in most sectors and large inflows to domestic mutual funds from price-agnostic investors.

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Kotak expects more corrections to so-called narrative stocks as most of them are still trading at "unfathomable valuations" despite the supporting narratives of the stocks were based on unrealistic assumptions of growth and profitability. A few of such narratives have turned sour, such as the privatisation of public sector firms, Kotak said. 

The research firm argues that the narrative stocks are still disconnected from fundamentals and their real values are 10%-50% of their current market caps. 

Kotak's sees downsides of between 21%-62% in stocks like BHEL, Cochin Shipyard, HPCL, Power Grid, NTPC and Bharat Electronics from their market prices on September 10. 

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