Navigating the Rise, Correction, and Resilience of India’s PSUs

As I pen down this preface, the story of India’s Public Sector Undertakings (PSUs) stands at a fascinating juncture. Over the past few years, PSU stocks have staged a remarkable comeback from being the market’s underachievers to becoming its unlikely stars. The S&P BSE PSU Index has nearly quadrupled in this period. This rally was not an overnight sensation but a multi-year climb fuelled by fundamental shifts.

What drove this dramatic turnaround? A confluence of policy-driven tailwinds and improved business fundamentals powered the PSU resurgence. The government’s aggressive infrastructure push – spanning railways, roads, defence, and power – created a strong earnings visibility for many PSUs. After nearly a decade of tepid capital expenditure, the post-pandemic period saw New Delhi open the taps on public spending, fuelling a massive rally in investment-driven sectors. Clearly, investor sentiment shifted as governance improved and balance sheets strengthened – a payoff of reforms made many PSU enterprises “starkly efficient” in operations.

No rally is without its reality check. In mid-2024, the PSU party met a sharp correction, reminding us that markets rarely move in a straight line. The turning point came when the Union Budget signalled a pivot in focus – from capex to consumption-led measures, as the government prioritized short-term welfare and fiscal prudence ahead of elections. This change of stance was subtle but significant. The roaring bull run stalled and reversed in the second half of 2024 amid concerns of a slowdown in government capital expenditure. PSU-heavy sectors that had led the charge – railways, defence, shipbuilding, power – suddenly saw sentiment sour. By August 2024, nearly 30 high-flying “sarkari” stocks had fallen over 20 per cent from their peaks, entering bear-market territory. This pullback was exacerbated by valuation nerves; after such a steep climb, many PSUs were priced for perfection. Mutual funds and FIIs started trimming positions to lock in profits. Essentially, the market took a breather, digesting the possibility that the era of ever-rising capex might moderate.

The Road Ahead: A Long-Term Perspective on PSUs

Stepping back from the volatility, one fact remains clear: PSUs are strategic pillars of India’s economy. They are not just commercial enterprises, but instruments of national development and sovereignty. From oil and gas giants and power utilities to defence manufacturers and banking behemoths, PSUs anchor key industries critical for India’s economic stability and self-reliance. They contribute enormous revenues to the exchequer, employ millions, and often drive development in areas where private players hesitate. This structural importance means that, despite market ups and downs, PSUs will continue to play a pivotal role in India’s growth story. As an investor (and an advocate for our readers’ interests), I believe the recent correction offers a moment of reflection rather than despair. The cooling of PSU stock prices is an opportunity to reassess these companies with a longterm lens. Valuations have become more reasonable after the pullback, and many PSU balance sheets are stronger than ever.

In this special PSU-focused issue of DSIJ, we delve deep into the performance of India’s public enterprises. My hope is that this issue helps you, our valued retail investors, appreciate both the promise and the complexity of investing in PSUs. After all, successful investing is about marrying facts with perspective.

Best Regards,
The Editorial Team