Government gains PSU muscle as stocks climb peaks

Listed state-owned firms have added nearly ₹43 lakh crore in market cap in the three years ended March 31 to hit ₹61.22 lakh crore. To be sure, about ₹6.4 lakh crore was added via six new listings, such as those of Life Insurance Corp. of India (LIC) and Indian Renewable Energy Development Agency (IREDA), among others, during this period.

The and have seen significant gains of 326% and 493%, respectively, in three years, compared to a 142% return by Nifty.

Agencies

Share of Pvt Promoters at 5-yr Low
"The PSU re-rating isn't without reason, and the robust stock performance is underpinned by the strong financial resilience of traditional economy sectors during the Covid-19 pandemic, government policies and reforms, such as defence indigenisation, benefiting companies in these sectors," said Ashish Gupta, CIO, . "A heightened focus on , including formalised payout policies, balance sheet restructuring in public sector banks, and a structured , and attractive valuations, also fueled the rally in PSUs."

The share of declined to a 5-year low of 41% on March 31. Over the last 18 months alone, it has fallen by 361 basis points from 44.61% on September 30, 2022.

According to Prithvi Haldea, managing director of , this stems from stake sales by promoters to take advantage of bullish markets, relatively lower promoter holdings in some of the IPO companies and also overall institutionalisation of the market.

have seen sharp corrections between 2010 and 2019 due to frequent stake sales by the government, offloading by large foreign funds as a result of increased environmental, social and governance focus and a major hit to earnings for oil and gas PSUs due to the sharp fall in crude prices and gross refinery margins last year.

The Nifty PSE and Nifty PSU Bank indices plunged 22% and 25%, respectively, between 2010 and 2019. During this period, the Nifty rallied 133%. There was a disconnect between earnings growth on one hand and market cap reduction on the other. However, there was a turnaround in 2020.

"Over the last few years, things have changed drastically for PSUs. Steps such as hiring from private banks, fresh capital infusion and recovery of money from defaulters have changed the fortunes of government-owned banks," said Nimesh Mehta, country head-sales & products, .