Reasons to Invest in PSU stocks

The PSUs or Public Sector Undertakings have been there in the investment world of the Indian investors for a very long period of time. Here are some of the reasons why PSU stocks like NTPC and IRCTC should be taken into consideration:

  • Consistent dividend payouts

A lot of the large PSUs are established businesses with stable cash flows as well. Thus, they can keep their reputation as a stock that pays regular dividends. In the same manner, NTPC has already paid dividends for the last 27 years. The IRCTC share price too has consistently offered dividends since its IPO. Investors looking for regular income appreciate the dividend reliability of PSU stocks.

  • Visibility and stability

The businesses of PSU companies generally have high visibility and stability in their revenue streams, driven by industry position and government support. For example, being India’s largest power producer, NTPC enjoys stability in electricity demand. IRCTC has inherent stability as Indian Railways’ sole catering and ticketing arm. Their scale and dominance in respective sectors make PSU stocks relatively resilient.

  • Low volatility

Thanks to their steady operations and regular profitability, stocks like NTPC and IRCTC are less volatile compared to private sector peers. The beta of PSU stocks is lower. This makes them suitable for risk-averse investors who want less volatility in returns.

  • Value unlocking potential

Many PSUs hold significant unutilized assets, surplus land and non-core businesses. Initiatives like privatization, stake sales and spin-offs can unlock value in PSUs. Strategic disinvestment plans in companies like IRCTC etc. make their stocks attractive bets for value unlocking.

  • Strong financials
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Leading PSU companies like NTPC share price often have robust financial position in terms of higher cash reserves, higher credit ratings and comfortable debt levels. Their balance sheet strength provides earnings stability and growth capital for expansion.

  • Government ownership

The government stake provides confidence to investors on the certainty of operations, bailout possibility during losses and oversight on corporate governance. However, too much government control can also negatively interfere in some cases.

 

  • Benefits from reforms

PSUs stand to gain from India’s self-reliance push, infrastructure expansion and energy security focus. Reforms in sectors like mining, coal and power open up new opportunities which PSU stocks can capitalize on.

  • Scope for improved efficiency

Listing on the stock market and induction of independent directors on PSU boards can help improve transparency, focus and efficiency in operations. By bringing in professionals from the private sector, PSUs can imbibe a more performance-driven work ethic and cost optimization mindset. There is significant scope for PSUs to adopt best practices from the private sector across areas like financial management, HR policies, digitization and corporate governance.

Conclusion 

PSUs are undergoing an image makeover. Listing on the bourses has helped improve corporate governance and accountability. The newer generation of PSU management is performance focused. This changing outlook and professionalization can further unlock value.

Factors like stability, reforms and higher efficiency make a case for PSU stocks to be part of an Indian investor’s portfolio. The dividend yields, value unlocking potential and upside from operating leverage justify considering PSU stocks. However, evaluate performance on company merits rather than just investing based on the PSU tag.

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