'Sarkari' PSUs rock NSE-BSE market cap charts, share reaches 7 year high. Here's what turned around

The value of shares held by state-owned entities in listed companies reached a seven-year high of 10.38% of total market capitalization as of March 31, propelled by a strong rally in various public sector unit (PSU) stocks. This figure has fluctuated over the years, reaching a peak of 22% in June 2009 and a low of 5.1% in September 2020, before doubling in the past three years, as per data from primeinfobase.com.

According to an ET report, the rally in public sector companies can be attributed to factors such as re-ratings due to significant valuation discounts, high dividend yields, record cash flows, and speculation about potential privatization.

Over the past three years, ending March 31, listed state-owned firms have seen a remarkable increase in market capitalization, adding nearly Rs 43 lakh crore to reach Rs 61.22 lakh crore. It is important to note that approximately Rs 6.4 lakh crore of this growth was contributed by six new listings during this period, including Life Insurance Corp. of India (LIC) and Indian Renewable Energy Development Agency (IREDA).

‘Sarkari’ PSUs rock NSE-BSE market cap charts, share reaches 7 year high. Here’s what turned around

The Nifty PSE index and Nifty PSU Bank index have outperformed the broader market, delivering impressive returns of 326% and 493%, respectively, over the three-year period, compared to the Nifty’s 142% return.

Ashish Gupta, CIO of Axis Asset Management, explained, “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.” He further added that “A heightened focus on corporate governance, including formalised payout policies, balance sheet restructuring in public sector banks, and a structured divestment strategy, and attractive valuations, also fueled the rally in PSUs.”

The proportion of private promoters has reached its lowest point in five years, standing at 41% as of March 31. This figure has experienced a significant drop of 361 basis points from 44.61% on September 30, 2022, within a span of just 18 months.

Prithvi Haldea, managing director of Prime Database Group, attributes this decline to various factors, including promoters selling their stakes to capitalize on favorable market conditions, the presence of companies with lower promoter holdings among IPO listings, and a general trend towards market institutionalization.

PSU stocks experienced substantial declines between 2010 and 2019, primarily due to repeated stake sales by the government, divestment by large foreign funds driven by heightened environmental, social, and governance considerations, and a significant impact on earnings for oil and gas PSUs caused by the sharp decrease in crude prices and gross refinery margins in the previous year.

From 2010 to 2019, the Nifty PSE and Nifty PSU Bank indices suffered losses of 22% and 25%, respectively, while the Nifty index surged by 133%. This period was characterized by a discrepancy between earnings growth and market capitalization reduction. However, the year 2020 marked a turning point.

Nimesh Mehta, country head-sales & products at ASK Investment Managers, said, “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.”