Public sector enterprises (PSUs) were known for their sluggish growth, debt-laden balance sheets, and poor performance. However, since the COVD-19 pandemic, Indian PSUs have been one of the most remarkable stories of Indian capital markets, noted domestic brokerage Motilal Oswal.
Several PSU sectors have posted a very sharp turnaround in profit and creating unexpected shareholder value. As a cohort, the PSUs posted an unprecedented 36 percent profit after tax (PAT) CAGR during FY20-25, feeding into the 32 percent CAGR for the BSE PSU Index and a consistent expansion in PSUs’ share in overall profits to an impressive 38 percent.
However, after a remarkable post-pandemic rebound, PSU earnings growth moderated in FY25, weighed down by the high base of a robust 43 percent YoY increase in FY24 and a decline in O&G sector earnings.
"While some cyclical moderation did set in in FY25, key building blocks and an enabling environment for sustained profitable performance for several PSUs look intact. Consequently, PSU names in sectors with policy/demand tailwinds or structural growth potential should find a meaningful place in long-term investor portfolios, in our view," said the brokerage.
The brokerage said its top PSU ideas are State Bank of India Ltd, Hindustan Aeronautics Ltd, Bharat Electronics Ltd, Power Grid Corporation of India Ltd, and Coal India Ltd.
For the brokerage's PSU coverage universe, it sees a 10 percent PAT CAGR over FY25-27, primarily driven by the BFSI and O&G sectors, based on conservative assumptions relative to the FY25 base. "Logistics, Capital Goods, and Metals are also expected to contribute positively. Incremental profit growth is likely to be led by BFSI (53 percent), followed by O&G (20 percent) and Metals (12 percent)," added the report.
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Further, the brokerage noted that over the past year, the market capitalization of the BSE PSU Index hit an all-time high of Rs 74 lakh crore in July 2024, driven by consistent rerating trends. It then declined by 31 percent to Rs 51 lakh crore in February 2025 amid the broad market correction before recovering 25 percent to Rs 64 lakh crore in June 2025.
The index’s current market capitalization stands 14 percent below its all-time high (up 5 percent in
the year 2025 so far). Owing to the market correction (between October 2024 and March 2025), the
P/E ratio of the BSE PSU Index has come down to 11.7x, from 13.8x in July 2024, though it is up from 9.8x in February 2025.
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