In the last couple of months and years, PSU stocks have given multibagger returns to investors. Their market capitalization has increased by a huge margin. It now forms 15% of the total market capitalization in the country. The market capitalization is up by a massive 4% in the last two years, where the PSU stocks have seen a runaway in the stock prices.
This is clearly reflected in the BSE PSU Index, which gained close to 90% over the year, from 11,593.68 to 21,768.91. The highest-ever level was achieved on August 1, 2024, at 23,018.87, depicting bullishness in relation to PSU stocks.
Also Read: PSU stocks HUDCO, Cochin Shipyard among 13 additions into FTSE All-World index
Reaction: A note from Yes Securities resonates with this growth, pointing out that 12 state-owned companies entered the top 200 companies by market cap last year. Currently, 39 PSU companies are part of this elite group. However, despite this surge in market cap, these companies’ core financial metrics revenue, EBITDA, and PAT as a percentage of the total listed universe have not moved much.
It also expects that PSUs will lead capital expenditure in the NSE 200 and be the drivers for future growth and efficiency improvement. It is interesting that certain PSU stocks quote multiples much higher despite having lower forward earnings growth, probably reflecting robust investor confidence.
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People May Ask
What has led the market capitalization of PSU stocks to a drastic high recently?
The recent surge in market capitalization of PSU stocks is primarily due to the strong rally in their stock prices. The BSE PSU Index, which charts the performance of public sector companies, has grown nearly 90% during the last year. Increased investor interest, government reforms, and improved financial performance of some PSUs have also contributed to this rally.
Recently, which PSU companies have entered the top 200 by market cap?
For the last couple of years, about a dozen state-owned companies have found their way into the list of top 200 by market cap. The biggies include Coal India, Hindustan Aeronautics, IRFC, Cochin Shipyard, and Power Grid Corporation of India.
Why some PSU stocks are trading at higher multiples despite slower earnings growth?
PSU stocks are trading at higher multiples despite slower forward earnings growth. This valuation could be based on active investor sentiment, expectation of future growth, and assuming that these companies will dominate up-coming Capex in NSE 200.
Investors will, in all probability, be betting on the long-term potential of these companies, buoyed by government projects and infrastructure development.
Also Read: PSU pack bleeds with Mazagon, RVNL, Cochin Ship plunging up to 8% in market selloff
What does it mean when PSU stocks account for 15% of India’s total market capitalization?
That PSU stocks stand at 15% of India’s total market capitalization clearly suggests the role of these companies in the Indian economy. By that increase, the PSU companies have been provided with sufficient investor confidence to contribute meaningfully toward the growth of the economy in important sectors like energy, infrastructure, and defense.
What are the expectations for the future performance of PSU stocks?
The outlook for PSU stocks has been positive and, more particularly, on account of large capital expenditure by these companies, which could lead to better efficiency and hence improvement in growth.
The dominance of PSUs in Capex within the NSE 200 could be indicative of the fact that such companies are likely to show better profitability and more considerable market presence in times to come.
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