Nobody knows exactly what it means, but it’s an insult. The best part is that the receiver of this insult will be confused as to what you just said, and not sure if they should get mad or laugh. This is the opening you were waiting for to attack them while they’re thrown off.
“Shut up, you poonch!”
“What did you just say to me?”
“I said, ‘shut up you poonch!’”
“What the fu-“