Are PSU Stocks a Still Good Bet in 2025?

VMPL
New Delhi [India], September 29: PSU stocks have emerged as a lucrative option for Indian investors in the last few years. Owned by the government, historically considered as slow movers, heavily influenced by the policy overhangs, have now been delivering impressive results. Their strong performance is a reflection of strong government, positive policy reforms, improved financial discipline, and sectoral demands. Their sustainability in the volatile market is drawing the attention of investors. Let us explore more about PSU stocks, their performance, pros and cons, key driving factors and more.
What Are PSU Stocks?
PSU (public sector undertaking) stocks are the shares of companies in which the Central or State governments own more than 51% (majority) of the stake. These are the entities created by the government to serve essential sectors, along with creating commercial value. Banking, coal, infrastructure, defense, oil & gas, etc., are the sectors that have prominent PSUs.
These PSUs play a critical role in stabilising the Indian market. For example, SBI in banking for financial stability, NTPC in power for energy security. Secondly, most of the PSU stocks are part of indices and cover a significant part of the market capitalisation. Hence, investors keep a close watch on these stocks.
Recent Performance of PSU stocks
Let us look at how PSU stocks have performed over the last few years.
PSU Bank/PSU Indices
In 2024, PSU bank stocks have performed extremely well, with the Nifty PSU Bank index surging to 24.08% on the NSE. Even for long-term of last five years, the index has delivered a CAGR of 36%.
Big Movers
1. Bharat Electronics has given a whopping 1018% return in the last five years.
2. Coal India has given a 215% return in the last five years, though the return for the last one year is negative (-19%)
3. Energy and power stocks like ONGC, NTPC and Power Grid witnessed a sharp fall during the 2024 Lok Sabha Elections, but long-term performance has been extremely good.
Overall, the last three to five years have been broadly positive for PSU stocks. The investor sentiments have a favourable shift towards these stocks due to strong policy support. Strong government reforms and a push for green energy, infrastructure growth have also contributed. Along with that, higher capitalisation and control over NPAs and asset quality have boosted investor confidence.
Why Investors are Bullish on PSU Stocks in 2025?
Here are the important reasons why investors are bullish on PSU stocks in 2025:
1. Government's Infrastructure Push
The government's push for the infrastructural projects on the construction of roads, railways, and green energy is increasing the demand for PSU companies in various sectors like construction, coal and power. Favourable policies ensure PSUs' growth stories continue.
2. Strong Dividend Yields
PSU stocks are known to pay a steady dividend. Entities like NTPC, Coal India, and ONGC payout a significant portion of their earnings through dividends, providing stability to investors even in unpredictable times. This makes them lucrative for long-term investors.
3. Rising Defense and Energy Demand
Energy demand is rising globally. India is also expanding its energy capacity. India's defense production is increasing with the Make in India drive. With this government's allocation, and demand for defense is rising. PSU stocks like HAL, BEL and ONGC gain from this rising demand.
4. Banking Sector Revival and NPA Resolution
Improved asset quality, NPA reduction, and good credit growth are driving forces for the revival of bank PSU stocks. This has boosted investor confidence, and the reforms are giving a positive outlook on the sector.
5. Valuations Still Attractive
Despite the rallies in the PSU stocks, many of them are still traded at a lower valuation in comparison to private stocks of the same sector. This gives upside potential for the investor.
Risks and Concerns Around PSU Stocks
When it comes to stock investing, investors need to be cautious about risks and concerns. Here are some of the risks and concerns around PSU stocks:
1. As the government is the majority stakeholder, heavy government intervention in the decisions can be a primary concern.
2. As PSUs are prominent in cyclical sectors like banking, coal, infrastructure, etc. make them vulnerable to volatility in global interest rate changes, commodity prices, and demand cycles. The cyclical nature adds a layer of fickleness.
3. Though PSU stocks have been gaining traction in recent years with the strong reforms and profitability, they also have a history of underperformance. Lack of innovation and efficiency cannot be ignored.
4. Global unpredictability in monetary policies and energy prices
Are PSU Stocks Suitable for Retail Investors?
PSU stocks are suitable for a certain category of investors. If you are seeking stability and a steady income along with long-term capital appreciation, PSU stocks are a great choice. Stocks like Coal India, ONGC and NTPC are paying high dividends to investors. These stocks can be ideal for value investors also as some of the stocks are still low in valuation comparison to private peers. However, if you are a frequent trader, PSU stocks can be risky in the short term.
Top PSU Sectors & Stocks to Watch in 2025
Due to sectoral demand and strong policies, certain sectors and PSU stocks are going to stay in focus in 2025. That includes:
1. Banking: Financials of PSU banks like SBI, Canara Bank and Bank of Baroda look promising with higher credit growth and better management of NPA.
2. Energy and Power: Power Grid, NTPC, and Coal India have a positive outlook with the rising power consumption and the government's push for energy.
3. Oil and Gas: Policy changes and global crude prices keep investors hooked on stocks like GAIL, ONGC and OIC. Though the ONGC share price has been going down for a year, the five-year return has been good.
4. Infrastructure and Defense: HAL, BEL, and BEML remain central players with the Make in India and defense spending.
Disclaimer: This is not investment advice, and the mentioned stocks are for informational purposes only. Do your own research or consult a financial advisor before investing.
Conclusion
To conclude, PSU stocks reflect India's long-term growth story. With attractive dividends, PSU stocks provide potential scope for capital appreciation. The revival of many PSUs reflects the strong government policies and strong fundamentals. However, it is important to do fundamental analysis, consider sectoral outlook and other economic factors before investing.
(ADVERTORIAL DISCLAIMER: The above press release has been provided by VMPL. ANI will not be responsible in any way for the content of the same)