According to Jefferies, a leading international investment bank and capital market firm, the PSU index outperformed NIFTY by 40% in the calendar year 2023 and another 15% in 2024 ( till mid-February). Don’t get confused with these numbers. But for sure, you would have realized that PSUs play an important role in the Indian market and economy. Let us first understand in detail what PSUs are.
Before we move on to the blog, we would like to emphasize that the stocks mentioned here are in no way a recommendation. This is merely for educational purposes
What is a PSU in India? What is the full form of PSU?
Public Sector Undertakings (PSU ) or Public Sector Enterprises in India are enterprises in which the government holds 51% or more of the share. These enterprises are major contributors to the economic development of India. As its primary motive is the welfare of the people and not making a profit, PSUs contribute to the employment generation, infrastructure development, and overall well-being of the country.
Classification of PSUs in India
PSUs in India can be broadly classified into three categories. They are:
- Departmental Undertaking
- Non- departmental Undertaking
- Financial Institution
We will explain in detail about different PSUs coming under these categories later in this article.
Factors to Consider before investing in PSU
As government-owned firms, you might be thinking of PSUs as stable stock. However, there are certain criteria that you should consider before investing in PSUs. Let us see the factors in detail.
Government Policies and Regulations
Government policies and regulations directly impact the working and growth of PSUs. Government policies regarding the sectors in which PSUs are working will affect its performance. For example, recent privatization and disinvestment of public sector banks had an impact on the performance of such policies. Also, energy sector policies recently have changed to keep India’s commitment to combat climate change. These policies had a direct impact on the energy sector and public sector enterprises in India. So it is important to stay updated about the government policies, regulations, and initiatives that impact respective sectors.
Financial Performance
Analyze the financial performance of the PSU, including revenue growth, profitability, debt levels, and cash flow. You should look for consistent earnings growth and strong economic health indicators.
Management Quality and Governance
Assess the quality of management and corporate governance practices of the enterprises. Look for transparency, accountability, and integrity in the management team. Review the track record of the management in executing strategies and managing challenges.
Industry Outlook
Understand the dynamics of the industry in which the PSU operates. Consider the demand and supply of the products and services the PSU provides, technological advancements, and competition and analyze. Invest in PSU that operates in the sector with favorable long-term prospects.
Market Position and Competitive Advantage
Evaluate the market position and competitive advantage of PSU within its industry and choose the one with a strong market presence and competitive pricing. Investigate the ability of the PSUs you are choosing to withstand competition and adapt to the changing market conditions.
Dividend Payments and Profit Distribution
PSUs are known for their dividend payment history. For investors who are looking for a consistent income dividend payout can be an attractive option.
Valuation
Assess the valuation of PSU stocks based on fundamental metrics such as price-to-earnings (P/E) ratio, price-to-book (P/B) ratio, and dividend yield compared to industry peers and historical averages. Avoid overvalued stocks and look for opportunities where the stock price is undervalued relative to its intrinsic value.
Top PSU Stocks in India in 2024
Now that you know what are the public sector undertakings and factors to consider before investing in PSU stocks, let us see some PSUs to invest in 2024. We have gone through various analytics to compile the list for you. The list we have provided below is based on the market capitalization and analyst rating of the PSUs.
These stocks are chosen based on their market capitalization, which represents the total value of a company’s outstanding shares.
It is important to note that market capitalization in no way guarantees a company’s performance or the returns from its stocks. However, it can be used as a criterion for shortlisting companies from within a sector. Investors should recognize that other factors, such as financial health, management efficiency, and market trends, play crucial roles in determining the actual success of an investment.
This stock selection should not be construed as investment advice/recommendations/offer/solicitation of an offer to buy/sell any securities.
Wait! There appears to be a new term; Market Capitalization. As investors, you might be familiar with the term. However, we are not taking it for granted. Let us explore a brief definition of market capitalization.
What is Market Capitalization?
Market capitalization is a vital parameter to consider while calculating the company’s value based on the stocks. It is a measure of the total value of a publicly traded company’s outstanding shares of stock. It is calculated by multiplying the current market price of the company’s stock by the total number of outstanding shares.
Suggested Read: Intraday Telegram Channels in India
Now you know what market capitalization is; which is one of the most important factors to consider when choosing a company to invest in. Let us see major PSU stocks in 2024.
- National Thermal Power Corporation (NTPC)
- Oil& Natural Gas Corporation
- Coal India Ltd
- Power Grid Corp Ltd
- Indian Railway Finance Corp
- National Hydroelectric Power Corporation
National Thermal Power Corporation (NTPC)
NTPC is a PSU that is noteworthy in 2024 based on the analytics as well as its market capitalization. It is a leading power-generating company in India founded in 1975. Since its formation, it has been playing a crucial role in the generation of power and its sale.
NTPC has a market capitalization of 3,14,899 crore. Considering the power crisis resulting from the impact of climate change and recent advancements in technology, power generation will remain a highly demand-driven industry. So keep an eye on stock market trends to invest in power-related industries.
NTPC has Diverse power stations situated all over the country. It has been playing an important role in the production and distribution of power. Apart from power generation they also play a major role in exploring oil and gas.
Oil and Natural Gas Corporation
As a reputed PSU engaged in oil production and exploration, ONGC is one of the favorite stocks of investors who look for long term growth as well short term. It is a prominent company in the crude oil and natural gas sector, involved in exploring, developing, and producing crude oil, natural gas, and various petroleum derivatives.
A few notable subsidiaries of ONGC include ONGC Videsh Limited, Mangalore Refinery and Petrochemicals Limited, Hindustan Petroleum Corporation Limited, HPCL Biofuels Limited, Petronet MHB Limited, and others.
If you are looking for a PSU to invest in 2024, you can watch out for the stocks of ONGC and its subsidiaries.
Coal India Ltd
Established in 1975, Coal India Ltd stands as a vital pillar of the Indian economy, primarily focusing on coal mining operations spanning across 8 states in India. With a portfolio comprising over 300 mines, it encompasses underground, opencast, and mixed mining methods.
Additionally, it oversees the Indian Institute of Coal Management (IICM), serving as a corporate training hub within the country. Notable subsidiaries under its umbrella include Bharat Coking Coal Limited, Central Coalfields Limited, and Mahanadi Coalfields Limited, among others.
India is the fourth largest coal repository in the world. In the ongoing energy crises, investors looking for PSU stocks should carefully watch the stock market trend of Coal India Ltd and its subsidiaries.
Power Grid Corp Ltd
From the list above, you would have understood that power is a sector with a huge government presence and potential for growth.
Power Grid Corporation of India Limited (POWERGRID), a Maharatna PSU under the Government of India, commenced its operations on October 23, 1989. As a publicly listed company, 51.34% of its shares are owned by the Indian government, with the remaining held by public and institutional investors.
Specializing in power transmission, POWERGRID focuses on the planning, execution, operation, and maintenance of Inter-State Transmission Systems, alongside offering telecom and consultancy services.
Indian Railway Finance Corporation
Indian Railway Finance Corporation is a public sector enterprise financing Indian Railway. As a key player in the country’s infrastructure development, IRFC plays an important role in funding various initiatives and projects of the Indian Railway.
Investing in IRFC stocks provides investors with exposure to the railway sector, which is considered crucial for the country’s economic growth and connectivity. Given its government backing and involvement in essential infrastructure projects, IRFC stocks may appeal to investors seeking stable and long-term investment opportunities.
However, no PSUs are immune to market volatility. Hence, it is important to analyze all the aspects of the company and its stock movement to make a more informed decision. As an investor interested in PSU, IRFC is one of the important stocks you should watch out.
National Hydroelectric Power Corporation
National Hydroelectric Power Corporation (NHPC) is a leading public sector undertaking (PSU) in India that specializes in the development, operation, and maintenance of hydroelectric power plants. NHPC plays a crucial role in the generation of clean and renewable energy for the country’s power needs.
Its primary objective is to harness the potential of water resources to generate electricity, contributing to India’s energy security and sustainability goals. Hence, it is the best PSU stock option for environmentally conscious people who want to contribute to the sustainable development of the country through their investment.
NHPC’s projects are spread across various regions in India, with a focus on harnessing the potential of rivers and water bodies for power generation.
PSU Indices
PSU indices play an important role in the stock market ecosystem. These indices track the performance of Public Sector undertakings listed on Stock Exchanges. These indices provide investors with a benchmark to gauge the overall performance of PSU stocks and to assess the health of the PSU sector as a whole.
- NIFTY PSU Banks
NIFTY PSU bank index is designed to reflect the performance of the public sector banks.
- NIFTY PSE Index
The Nifty PSE Index comprises companies in which 51% of outstanding share capital is held by the Central Government and/or State Government, directly or indirectly.
- BSE PSU
BSE PSU consists of major public sector undertakings listed on the Bombay Stock Exchange.
Frequently Asked Questions About PSU Stocks
Which are important PSU banks in India?
State Bank of India, Bank of Baroda, Canara Bank, Indian Bank, Bank of Baroda, and Union Bank of India are important PSU banks in India.
What are PSU stocks in India?
PSU stocks in India are stocks of companies that are owned and operated by the government and span across various sectors such as banking, infrastructure, and energy.
What are the best PSU stocks to invest in India in 2024?
NHPC, ONGC, Coal India Ltd, Power Grid Corp Ltd, Indian Railway Finance Corporation, and National Hydroelectric Power Corporation are important PSU stocks that you can watch out for.
What are the important Defense sector PSU stocks in India?
- Bharat Electronics Limited (BEL)
- Hindustan Aeronautics Limited (HAL)
- Bharat Dynamics Limited (BDL)
- Garden Reach Shipbuilders & Engineers Limited (GRSE)
- Mazagon Dock Shipbuilders Limited (MDL)
Which is the largest PSU bank in India by market capitalization?
State Bank of India.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.
