India's economy faced challenges after colonial rule, leading to the focus on planned development through public-sector units (PSUs) to foster self-reliance and economic growth. PSUs, predominantly government-owned, played a pivotal role in sectors like steel, oil, and banking, driving employment and competitiveness. Many PSUs were listed on the stock market, contributing to the surge in the BSE PSU Index over the past five years. PSUs are closely linked to the core sectors of the economy, including finance, coal, capital goods, infrastructure, oil, power, metal, and mining, which play a crucial role in nation-building.
What are Public Sector Undertakings (PSUs)?
Companies or businesses owned by the Indian government are known as Public Sector Undertakings (PSUs). The federal or state governments own the majority typically more than 50% of the shares. These companies make substantial contributions to the economy of the country through their operations in a variety of industries, including banking, energy, telecommunications and manufacturing.
Disclaimer: The market capitalisation and 5-year average return on investment mentioned above are accurate as of 10th April 2024. However, it's important to conduct your research before making any investment decisions in these stocks.
Overview of the PSU Stocks List
Here is an overview of the best PSU stocks in India:
Oil and Natural Gas Corporation Ltd.:
With the largest oil and gas exploration and production company, ONGC is one of the best PSU oil stocks. This company's share of domestic production in India is approximately 71%. The company is essentially debt-free and has maintained effective average operating margins of 30.33 percent for the past five years. The company has demonstrated strong profit growth over the last three years, up 42.34 percent and a healthy interest coverage ratio of 19.67 percent.
NTPC Ltd.:
National Thermal Power Corporation is the full name of the organisation, which was established in 1975 and has its main office in New Delhi. With the largest energy conglomerate in the country and a robust installed power capacity of 62110 MW, it is a well-known public sector company in India. The company has had a high promoter holding of 51.10 percent and has maintained an effective average operating margin of 26.62 percent for the last five years.
Coal India Ltd.:
This company is headquartered in Kolkata and is overseen by the Indian Government. With almost 2,72,000 workers, Coal India ranks ninth among Indian employers. It has demonstrated strong revenue growth of 31.74 percent over the last three years and has kept a strong ROCE of 68.55 percent.
Power Grid Corporation of India Ltd.:
The Government of India's Ministry of Power is the owner of Power Grid, a central PSU. This company primarily moves large amounts of power between Indian states. Its main office is situated in Gujrat. The company has experienced strong cash flow management over the past three years with a ROE of 20. 19 percent CFO/PAT is at 2 points15.
Bharat Electronics Ltd.:
This company was founded in 1954 and provides electronic systems and equipment to the defense industry. It has demonstrated strong profit growth of 18 points79 percent and a strong interest coverage ratio of 216 points87 over the last three years. This business essentially has no debt.
The Categorisation of PSUs in India
Public Sector Undertakings (PSUs) in India are different types of government-owned companies. They are classified based on who owns them and how much freedom they have in decision-making.
Central Public Sector Enterprises (CPSEs)
are the big ones, and they are owned and controlled by the Central Government of India. They can further be classified in three categories:
Maharatna:
Maharatna are the most profitable and biggest CPSEs, and they are allowed to make important decisions without needing government approval. For example, NTPC Ltd is a Maharatna company.
Navratna:
These CPSEs are profitable and have the flexibility to make investment decisions, but not as flexible as Maharatna. For example, Container Corporation of India Limited (CONCOR) is a Navratna company.
Miniratna:
These CPSEs are smaller and can make limited decisions regarding investments. They are further divided into Category-I and Category-II, with different levels of freedom. For example, the Airports Authority of India (AAI) is a Miniratna company.
State Public Sector Enterprises (SPSEs)
are controlled and owned by the state government of India. Compared to CPSEs they work on a smaller scale but still play an important role in the state's economy. For example, GRIDCO Limited in Odisha is an SPSE.
Joint Ventures (JVs)
can be called partnerships between the government and private companies. They both work together on certain projects like building infrastructure. For example, a Public-Private Partnership (PPP) is a type of JV where the government and private companies work together on projects.
PSU bank stocks
are owned by the government of India. These are shares that are kept in banks, and these banks are important in India's financial sector because the government of India runs them.
How to Invest in PSU Stocks?
Investing in PSU (Public Sector Undertaking) stocks can be a great investment move, but it requires careful planning and consideration. Here are some tips to employ before investing in PSU stocks in India:
Diversification:
Adding PSU stocks to a well-rounded investment portfolio can help spread out risks. One can look for the best list of all PSU stocks in India and blend them with other types of investments to balance out potential losses.
Stay Informed:
Keep yourself updated on market trends and investment strategies, as the PSU sector and government stocks in India are subject to various changes and developments.
Have an Exit Plan:
Adjust your portfolio whenever needed and set clear exit points.
Seek Professional Advice:
Consider consulting with financial experts if you're unsure about navigating the complexities of investing in PSU stocks because based on your investment goals, they can provide valuable insights and personalised guidance.
Regular Portfolio Review:
Keep a close eye on your PSU stock portfolio and make adjustments as necessary because there are always some changes in government policies.
Choosing the Best PSU Stocks to Invest in India
Following are the steps to choose the best PSU stocks:
Financial Health:
Look for PSU stocks with solid financial health, such as steady revenue growth, feasible debt levels, and consistent profitability.
Government Policies:
Consider taking into account the government's policies and initiatives because they directly impact the PSU sector.
Management Quality:
For long-term growth, evaluate the key skills and moral character of the company's management team.
Market Position:
Analyse the market position of PSU and its competitive advantage, as companies with a strong market presence and unique offerings are more likely to grow.
Risk Assessment:
It is important to assess the risks associated with investing in the PSU, including regulatory, geopolitical, and industry-specific risks. One can diversify the portfolio to reduce risks across different sectors and asset classes.
Features of the Top PSU Stocks in India
Here are the features of the top PSU stocks in India:
Stability and Assurance:
Thanks to government ownership and backing, investing in PSU share price in India provides a sense of security and assurance, this basic feature of Indian PSU stocks instils confidence among investors, especially during times of market uncertainty.
Regular Dividend Payments:
PSU stocks are well known for their history of regularly distributing dividends to shareholders to share earnings with them. This steady income stream makes investing in these stocks more appealing, which could increase overall returns.
Gradual Long-Term Growth:
PSU stocks frequently provide consistent and long-term growth, even though they might not provide quick short-term returns, so investors looking for a steady appreciation of their investments over time may find this feature appealing.
Driving Economic Growth:
Investing in PSU equities is a direct way for investors to support industries that are essential to the country's economic growth. These businesses, which include infrastructure, telecommunications, and energy, are crucial for promoting economic growth.
Risks of Investing in PSU Stocks
The risks involved in investing in PSU stocks are:
Bureaucracy and Inefficiency:
PSUs are known for their bureaucratic organisational structure, which makes the whole process time-consuming and delays the development process.
Market Reaction to Disinvestment:
When a government pulls out a PSU, it may cause market turbulence, which could affect investor sentiment and the performance of the stock.
Earnings Volatility:
Many PSUs are involved in cyclical industries, such as commodities, where changes in market circumstances or economic downturns can significantly impact earnings.
Dividend Uncertainty:
PSUs frequently pay dividends, although there may be some uncertainty over the regularity of these payments. The amount and frequency of dividends can be influenced by the dividend policies of the government and the company’s financial performance.
Low Trading Liquidity:
Sometimes, PSU stocks have low trading volume, which can result in liquidity issues that impact buying and selling shares.
Limited Attention to Shareholder Value:
Government priorities may extend beyond maximising shareholder value, impacting decisions related to investments, dividends, and mergers within PSU companies.
Who Should Invest in PSU Stocks?
Public Sector Undertakings (PSUs) in India offer a wide range of investment opportunities across different sectors like telecom, mining, finance, and energy. Even though these stocks hold potential, they are subject to various influences such as regulatory changes, privatisation moves, and political dynamics. Conducting comprehensive research beforehand is essential to identify if investing in PSU stocks aligns with your investment strategy. Furthermore, it's important to remain attentive to market trends and regularly review your investment decisions, ensuring they remain consistent with your financial objectives and risk tolerance.
Disclaimer: The stocks mentioned above are based on current market trends and can fluctuate in value. Before investing in any of these stocks, it is important to conduct thorough research or consult with a financial analyst. Investors are advised to exercise caution and diligence when making investment choices.
Conclusion Investing in the best PSU stocks in India can offer stability, dividends, and growth potential, making them attractive options for investors. Investors can make informed decisions by understanding the features, the categorization of PSUs, analysing their financial health, and staying informed about market trends. However, it's crucial to be aware of the risks involved, such as bureaucracy, market volatility, and government interference. Additionally, With careful consideration with a stock market app, can provide access to a wider range of investment options.
FAQs for best PSU Stocks in India
PSU stands for Public Sector Undertaking.
PSU stock investments can provide stability, consistent dividend payments, and long-term growth potential.
The best way to select PSU stocks for investment is by considering the market position, risk assessment, government policies, management calibre, and financial stability.
The risks associated with buying PSU stocks are inefficient bureaucracy, market reaction to disinvestment, earnings volatility, dividend uncertainty, and little trading liquidity.
Investors who are looking for long-term growth prospects, dividends, and stability should purchase PSU stocks.
