BSE PSU index doubled in 1 year, investors got up to 650% return, how to make strategy in stocks of government companies

PSU Stock Strategy :After a decade of poor performance, Indian PSUs i.e. Public Sector Undertakings have made a strong comeback. PSU companies have performed well in FY24 and beyond. Talking about the last 1 year, the BSE PSU Index has strengthened by about 100 percent. During this period, there are many stocks (PSU Stocks) included in the index, which have seen 100 to 650 percent growth. Brokerage house Motilal Oswal believes that the outlook of the PSU sector looks strong going forward and some stocks are ready to give high returns to investors.

Brokerage house Motilal Oswal says that the PSU index has increased by 113 per cent since December 21, 2022. The market capitalization of the BSE PSU index increased 2.1 times from Rs 32.5 lakh crore to Rs 69.1 lakh crore between December 2022 and June 2024. The BSE PSU index P/E ratio has increased from 8.7x to 12.8x during the same period.

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FY19-24 : 33.8% CAGR

During FY19-24, PSU earnings recorded a CAGR of 33.8 per cent, outperforming the private sector, which recorded a CAGR of 18.6 per cent during the same period. After remaining in the range of 17-30 per cent during the last few years, the share of PSUs in the profit pool increased to 36 per cent in FY24. Moreover, PSU earnings witnessed a spectacular growth of 45 per cent year-on-year during FY24.

Notably, PSU losses have steadily declined over the last 5 years. The contribution of loss-making companies (1% of the profit pool in FY14 vs 45% in FY18) has declined over the years.

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Political stability is a good sign

Political stability with Modi 3.0 bodes well for the economy and capital markets as it provides the necessary stability and continuity in policy-making that will continue to drive its economic agenda. In our view, this decision and the resulting political stability and continuity in policy-making will act as icing on the cake.

Improvement in profitability of PSUs

The brokerage says that domestic and global cyclicals are likely to result in significant improvement in PSU profitability, with sharp reversals. The fortunes of PSU banks are driving the overall trend. High commodity prices in the last two years have strengthened the P&L and balance sheets of metal and oil and gas PSUs. Localisation in the defence sector, increased capex and the government’s emphasis on ‘Make-in-India’ have driven the improvement in the fortunes of industrial PSUs. Hence, we expect the PSU contribution to earnings and market capitalisation to continue to improve.

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You can get returns in these stocks (PSU Stocks to Buy)

SBI
Coal India
GAIL
HPCL
Bank Of Baroda