Red-hot PSU stocks outclass global peers, but history may be harder to beat
The name ‘Secretariat’ may not ring a bell with most people, but racetrack regulars swear by it. Secretariat was an American thoroughbred who is widely considered the greatest racehorse of the 20th century. The sly steed had a signature move.
He usually ambled along in last place in the early stages of the race but suddenly picked up the pace in the latter half to gallop past the finishing line, leaving his competitors in the dust. Dalal Street is seeing a similar last-to-first dash. Stocks of public-sector undertakings (PSUs), which until recently were synonymous with lethargic returns, have been on a tear.
The BSE PSU Index is up 23% this year and a whopping 300% since October 2020, when it started to outrun the broader market after almost a decade of underperformance. The PSU index was the second biggest sectoral gainer in 2023 with 75% returns, far outperforming the benchmark’s 20% jump. Thanks to this furious rally, Indian PSU stocks now have the highest market returns among state-owned enterprises globally.
On more fundamental yardsticks, too, such as earnings-per share (EPS) growth and return on capital employed (ROCE), Indian PSUs are comfortably ahead of global giants such as Saudi Aramco and PetroChina. As expected, the narrative has followed the price. Analysts have trotted out a plethora of reasons why Indian PSUs deserve their moment in the sun – robust order bookings (for industrials, defence stocks), the government’s increasing capital expenditure, and healthy balance sheets (for public-sector banks).
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