In the ever-evolving financial market, the need to diversify one’s portfolio and make long-term investments cannot be overemphasized. There is a need for investors to make investments that are considered less risky and have potential long-term returns. In the Indian stock market, PSU stocks have long been seen as pillars of growth and stability. They offer a remarkable sense of reliability due to their low volatility. They are considered less risky because they offer government backing, support, and market potential to investors. Before listing the top PSU stocks to buy, let’s understand what PSUs are.
What are PSUs?
Public sector undertakings (PSUs) refer to companies in India that are owned by the government or state. The government owns a majority stake in these companies (at least 51%). PSUs play a significant role in the Indian economy. They account for around 15% of the total market capitalization on Indian stock exchanges. There are over 270 PSUs in India currently, operating across diverse sectors like banking, oil and gas, steel, mining, infrastructure, aviation, etc.
Categories of PSUs
Public sector undertakings (PSUs) are classified into four categories based on their ownership, role, and strategic importance.
1. Central Public Sector Enterprises (CPSEs)
These are PSUs directly owned and controlled by the central government and fall under the purview of the Department of Public Enterprises (DPE).
2. State-Level Public Enterprises (SLPEs)
SLPEs are PSUs controlled by individual state governments. They operate at the state level and contribute to the economic growth of the region.
3. Public Sector Banks (PSBs)
These are banks in India where the government controls and owns a majority stake, playing a crucial role in the country’s financial sector.
4. Joint Ventures (JVs)
JVs are companies owned by both the private and public sectors; they are joint collaborations, with the government holding a higher stake. With both sectors playing their parts in the realization of shared goals, JVs have also significantly contributed to the economy.
List of PSU Stocks to Buy Now
- Oil and Natural Gas Corporation Limited
- Hindustan Aeronautics
- State Bank of India
- NTPC Limited
- Power Grid Corporation of India Limited
- Container Corporation of India Limited
- Bharat Petroleum Corporation Limited
- Bharat Electronics Limited
- Coal India Limited (CIL)
- Power Finance Corporation Limited
Oil and Natural Gas Corporation Limited
ONGC is India’s largest oil and gas exploration and production company and a global energy holding company. It holds a dominant position in the country’s energy sector, contributing significantly to domestic oil and gas production. It is engaged in the exploration, development, and production of crude oil and natural gas. With its robust presence in both upstream and downstream activities, ONGC is one of the best PSU stocks to invest in.
Hindustan Aeronautics
Aeronautics Limited (HAL) is an Indian state-owned aerospace and defense company and one of the world’s oldest and largest aerospace companies. It actively designs, manufactures, and services various aviation products such as fighter jets, aircraft, helicopters, aero-engines, avionics, and aerospace structures. HAL plays a pivotal role in strengthening India’s aerospace and defense capabilities and contributes to strategic technology development.
State Bank of India
SBI is the largest public sector bank in India, with over 20% market share in deposits and loans. Providing a range of products and services to personal and commercial enterprises, large corporations, public bodies, and institutional customers, the bank has seen steady growth in loans and profit over the last few quarters.
NTPC Limited
NTPC is India’s largest power generation company, with a diverse fuel mix and presence across the power value chain. The company is engaged in the generation and sale of bulk power to state power utilities. It has seen stable growth in electricity generation and profits. The company has a strong order book and is expanding into renewable energy. The stock trades at attractive valuations with a healthy dividend yield of over 5%.
NTPC is engaged in diverse business lines, including power generation, transmission, distribution, coal mining, oil and gas exploration, and renewable energy.
Power Grid Corporation of India Limited
Power Grid Corporation of India Limited is a transmission company engaged in power transmission with responsibility for the planning, implementation, operation, and maintenance of interstate transmission systems.
PowerGrid is India’s leading power transmission utility, with a near monopoly and ownership of most of the national grid, as it oversees the transmission of approximately 50% of the nation’s total power. It has stable growth and cash flows driven by regulated returns. The debt-free balance sheet, high ROE of 20%, and 5% dividend yield make PowerGrid a reliable pick for defensive investors looking to invest in PSU stocks.
Container Corporation of India Limited
Container Corporation of India Limited is engaged in the transportation and handling of containers. The company is also engaged in the operation of logistics facilities, container freight stations, and private freight terminals.
CONCOR is a dominant leader in container logistics with a pan-India network. The company is seeing a pickup in trade volumes and has maintained high operating margins of over 30%. The stock has an attractive dividend yield of over 8%.
Bharat Petroleum Corporation Limited
Bharat Petroleum Corporation Limited is engaged in offering motor spirit (MS), high-speed diesel (HSD), and liquefied petroleum gas (LPG). The company is in the business of refining crude oil and marketing petroleum products, with about 15% market share. The government is progressing with its strategic disinvestment plans for the company. This presents a good value-unlocking opportunity. Meanwhile, BPCL has posted excellent growth in refining margins and profits. The stock trades at reasonable valuations.
Bharat Electronics Limited
Bharat Electronics Limited is engaged in the design, manufacture, and supply of electronics products and systems for defense as well as nondefense markets. The company’s principal products include weapon systems, radar, fire control systems, etc. Bharat Electronics Ltd. holds a strong position in India’s defense sector, and it is also expanding its presence in civilian markets and venturing into international defense markets.
Coal India Limited (CIL)
Coal India Limited (CIL) is the largest government-owned coal producer in the world. The company is engaged in the production and sale of coal. It serves the power and steel sectors, as well as the cement, fertilizer, brick, and kiln industries, among others.
Coal India Limited is one of the best PSU stocks to invest in. It has achieved notably outstanding annual revenue growth of 27%, maintained a commendable pre-tax margin of 27%, and boasted an exceptional return on equity (ROE) of 49%.
Power Finance Corporation Limited
A leading non-banking financial institution in India that provides financial assistance for the development of the power sector. It is the financial backbone of the nation’s power sector, offering financial support as a Public Financial Institution and Non-Banking Financial Company. PFC finances projects in the generation, transmission, and distribution sectors, as well as supports the renovation and modernization of existing power projects.
Benefits of Buying PSUs
Low volatility
PSUs tend to have stable business models and steady revenue streams. As a result of government involvement, ownership, and management, they are more resilient in a market crisis. This makes PSU stock prices less volatile compared to private companies.
Dividend yields
Many profitable PSUs have a good track record of dividend payments. They have a tradition of sharing a portion of their profits with investors. The dividend yields are often attractive, ranging from 4–8%. Consistent dividend distribution is a reliable source of income and potentially enhances the total return on investment.
Diversification
PSUs provide sectoral diversification to your portfolio beyond private sector companies. This will help you manage the risks associated with a specific sector, thereby providing a more solid portfolio. In line with diversifying your portfolio, this will also make you invest in various sectors, as PSUs cover banking, oil and gas, power, mining, and manufacturing sectors.
Long-term Investments
The government’s ownership provides stability for PSU businesses. They might not offer huge short-term gains, but investors can adopt a buy-and-hold strategy. This is mostly beneficial to investors who desire a steady appreciation of investments.
Reform-driven growth
Reforms and disinvestments in PSUs can unlock value and growth opportunities for investors. Because the government is actively or partially involved, reforms can be made that will positively impact that industry.
Conclusion
Investing in PSU stocks is a great way for investors to diversify their portfolio. For years now, PSU stocks have been lagging behind, especially due to bureaucratic inefficiencies, but some of them have performed well in the last few years and months and have had financial analysts describe them as “hottest investments.” It is always advised to do your own research before going into the market. In order to measure the performance of PSU, it is important to have a close look at indicators such as their share of GDP, capital formation, employment generation, etc. You can begin your research by tracking the current performances and prices of these stocks. Click here.