After delete worked and the a foreach execute update seems to work best. Below is a satisfactory test set.

-- create test table
CREATE TABLE test1 (
a int,
b int,
c int);
-- create resort function
CREATE OR REPLACE FUNCTION resort_test1() RETURNS TRIGGER AS '
DECLARE
  eachrow RECORD;
  innerrow RECORD;
  sort INT := 0;
BEGIN
   sort := 0;
FOR eachrow IN EXECUTE ''SELECT * FROM portfolio.test1 WHERE a = '' || OLD.a LOOP
      IF eachrow.b != OLD.b THEN
EXECUTE ''UPDATE portfolio.test1 SET c = '' || sort || '' WHERE a = '' || eachrow.a || '' AND b = '' || eachrow.b || '''';
          sort := sort +1;
      END IF;
  END LOOP;
  RETURN OLD;
END;
' language 'plpgsql';

-- create trigger
CREATE TRIGGER u_test1 AFTER DELETE ON portfolio.test1 FOR EACH ROW EXECUTE PROCEDURE resort_test1();

-- sample data
insert into test1 values(1,1,0);
insert into test1 values(1,2,1);
insert into test1 values(1,3,2);
insert into test1 values(1,4,3);
insert into test1 values(1,5,4);

insert into test1 values(2,1,0);
insert into test1 values(2,2,1);
insert into test1 values(2,3,2);
insert into test1 values(2,4,3);
insert into test1 values(2,5,4);

-- test delete
delete from test1 where b = 2 or b = 4;
-- view test results
select * from test1 order by a, b, c;



---------------------------(end of broadcast)---------------------------
TIP 9: In versions below 8.0, the planner will ignore your desire to
      choose an index scan if your joining column's datatypes do not
      match

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