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PSU Stocks for Long Term – Multibagger Return- Do you Own Any?

PSU stands for Public Sector Undertaking – essentially, companies owned and operated by the government. Now, these aren’t your run-of-the-mill corporations; they’re the heavyweight champs, often playing crucial roles in sectors like banking, energy, and manufacturing. Ever heard of the big players like ONGC, BHEL, or SBI? You guessed it – they’re PSU stocks! These giants often come with a certain level of stability and a dash of government backing. In the Indian market, PSU Stocks play a major role. They offer investors a unique blend of government backing and market potential. Let’s delve into the intricacies of PSU stocks, their classifications, and strategies for investing in this lucrative sector.

The story behind PSU is interesting. After independence, India’s economy was in a mess. It was exploited by colonial powers. Insufficient industrial base, poor infrastructural and technological framework, and untrained human resources were not the ideal combination for a take-off. To make India self-reliant and plan its steady economic growth, the country adopted a path of planned development in which public-sector units, or PSUs, had a crucial role to play.

PSU Stocks

These PSUs became the engine of India’s economic growth, producing key commodities such as steel and oil as well as manufacturing heavy machinery and providing banking and other financial services. In turn, they also generated employment for lakhs of people. The government also ensured that they remained competitive and gave them enough firepower to compete with the private sector. These led to stellar growth for many PSUs, many of whom also had an edge in terms of market access.

The government listed many of these PSUs on the stock market to raise funds and for various other regulatory purposes. Many of these stocks gave good returns. The BSE PSU Index, which has some of these state-owned companies as constituents, has risen from around 7,200 to around 11,100 in the last five years, making it one of the best-performing indices.

Classification of PSUs

In India, PSUs are classified into three categories based on their ownership and the level of control by the government. They are:

Central Public Sector Undertakings (CPSUs): Companies that are under the direct control of the Central Government or other public undertakings with more than 51% capital share ownership. CPSUs can further be classified into strategic (ammunition and defense equipment, other items related to defense, atomic energy, and railways) and non-strategic CPSUs (other PSUs apart from the strategic sectors).

State Public Sector Undertakings (SPSUs): These are companies that are under the direct control of a state government or other state-run public undertakings that own at least 51% share ownership.

Public sector banks (PSBs): These include banks where the central government has more than 51% share ownership.

PSU Categories 

Based on factors like income and annual revenue, some of the common categories of PSUs are:

Maharatna – The Titans

The top dogs in the PSU world! Companies like ONGC, Indian Oil, and NTPC hold the Maharatna title. What makes them special? Well, these giants have the autonomy to make significant investment decisions without seeking government approval. Talk about flexing their financial muscles!

Navratna – The Gems

Not quite Maharatna level, but don’t underestimate them! The Navratna companies, including BEL, HPCL, and Power Grid, have a bit more flexibility compared to their counterparts. They can make strategic decisions without micromanaging from the government. Think of them as the cool cousins who still have to check in with the family but get more freedom.

Miniratna – The Rising Stars

At the bottom rung of the classification ladder but rising stars nonetheless! These companies, like PFC, RITES, and IRCON, have a bit of autonomy but still need to keep their parents (the government) in the loop for significant moves. They’re like teenagers – trying to spread their wings but not quite there yet.

Multibagger PSU Stocks 

The past year witnessed an unprecedented surge in the stock market, particularly in PSU stocks, with 21 government stocks registering multibagger returns, signifying a one-year return exceeding 100%.

One of the best performers multibagger PSU stock last year was IRFC. IRFC has given 451% returns to the investor. This means IRFC stock investor’s money grew more than four times (4x) last year. (From 1st Jan 2023 to 20th Jan 2024).

In the last year, IRCON grew by 341 percent, RVNL by 371 percent, PFC by 269 percent, RAILTEL by 246 percent, ITI by 244 percent, Mazgaon Docks by 198 percent, NLC India by 182 percent and IFCI by 179 percent.

Other government stocks that have returned over 100 percent in the last year include MSTCL, SJVN, HUDCO, Engineers India, BHEL, NBCC, IREDA, HAL, GICRE, and BEML.  

A list of 21 Multibagger stocks with returns is given below.

PSU Stocks

The list is given for information purposes only and not as investment advice. Consult the stock market expert before investing in any of the stocks. 

How to Invest in PSU Stocks?

Here are a few strategies to employ while investing in PSU Stocks. 

  1. Research –  Dive into their financial reports, scrutinize their management team, and understand their market presence. Do not invest without doing your own research. 
  2. Diversify- Include PSU stocks from a government stocks list as part of a diversified portfolio to mitigate risks associated with this sector.
  3. Exit Strategy- Determine exit points based on your investment goals, and be prepared to adjust your portfolio when needed.
  4. Continuous Learning- Stay informed about developments in the PSU sector and continuously educate yourself about investment strategies.
  5. Professional Advice- Consider seeking advice from financial experts who understand the intricacies of investing in PSU stocks.
  6. Regular portfolio review and adjustment- Frequently review your PSU stock portfolio. Government policies, earnings shifts, and market changes require adaptation. Manage risks, boost returns, ensure diversity, and inform decisions. Stay ahead in a sector shaped by distinct challenges and government influences.

What are the Factors to Consider Before Investing in PSU stocks?

The following factors must be considered when investing in PSU Stocks:

  1. Financial Performance- Assess the PSU’s financial health, including revenue growth, profit margins, and debt levels. A track record of consistent profitability is a positive sign.
  2. Government Policies- Understand how government policies and regulations impact the PSU’s operations. Changes can influence stock performance. This understanding is of importance in times of political instability, in case the government ownership or decision-making is impacted. Check out the government shares list and prices on there. 
  3. Market Position- Evaluate the PSU’s market government share, competitive advantage, and growth prospects in its sector. This will provide you with an in-depth understanding of what you are getting yourself into.
  4. Management Quality- Analyse the management team’s experience, strategies, and transparency in decision-making.
  5. Risk Tolerance- Understand your risk tolerance and investment horizon before committing to PSU stocks.
  6. Valuation- Assess the stock’s valuation compared to earnings, book value, and industry peers. This allows you to get an idea about whether you’re making a profitable investment.

Shitanshu Kapadia
Shitanshu Kapadiahttp://moneyexcel.com/
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion. We do not offer any stock tips, investment, insurance or finance product related advice. Please consult a qualified financial planner and do your own due diligence before making any investment decision.
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