Best PSU stocks in India 2024: Best picks for investment

Public Sector Undertakings (PSUs) play a vital role in promoting the country's economic growth. It has been aiding in creating jobs, expanding infrastructure, and improving the prosperity of society.

The main goal of the PSU sector is to prioritize serving the public interest over maximizing profits. Indian public sector undertakings (PSUs) are involved in various industries such as energy, banking, manufacturing, mining, telecommunications, defense, steel, and more.

Public Sector Units (PSUs) rank high as one of the leading employers in India. It has been generating many employment opportunities in various cities across India. Additionally, public sector enterprises (PSEs) play a crucial role in influencing government policies and programs. They are involved in implementing government programs concerning rural development, poverty alleviation, socio-economic welfare, and more.

In terms of finances, the performance of PSU companies differs depending on the sector. Although some PSUs have experienced challenges such as market competition and inefficiency, many have remained profitable. It is important to thoroughly research and evaluate factors influencing investment decisions before investing in PSU stocks. Here are some best PSU stocks in India you should consider.

Bharat Petroleum Corp Ltd

BPCL, along with Indian Oil Corp, is one of India's two main refining PSUs. It manages three large refineries in Mumbai, Kochi, and Bina (Madhya Pradesh) and oversees over 20,000 fuel stations nationwide. The government is considering privatizing the company.

Coal India Ltd

Established in 1975, Coal India Ltd is a crucial component of the Indian economy. Its primary focus is on extracting coal and operations are carried out in 8 states in India. The company owns more than 300 mines, which consist of underground, opencast, and mixed.

It is a Maharatna company and manages the Indian Institute of Coal Management (IICM), a business training center in India.

Coal India also possesses multiple subordinate companies. Some of the well-known ones are Bharat Coking Coal Limited, Central Coalfields Limited, Mahanadi Coalfields Limited, making it one of the best PSU stocks to consider.

NHPC

NHPC was established in the year 1975. It is involved in producing and selling large amounts of electricity. NHPC's main business activities include project management, consultancy services, construction contracts, power trading, and other related services.

Included in its portfolio are subsidiary companies like Jalpower Corporation Limited, Loktak Downstream Hydroelectric Corporation Limited, Chenab Valley Power Projects Private Limited, positioning it among the best PSU stocks to consider.

Hindustan Aeronautics Ltd

Based in Bangalore, HAL is India's top aerospace and defense manufacturer. It specializes in producing fighter and trainer aircraft, helicopters for the Indian Air Force, civilian airplanes, engines for space missions, and advanced avionics systems. HAL stands out as one of the best PSU stocks to consider, given its critical role in India's aerospace and defense sectors.

Oil & Natural Gas Corporation

ONGC, known as Oil & Natural Gas Corporation, was founded in 1993. It is a prestigious PSU in India that primarily focuses on oil exploration and production. It is a leading company in the crude oil and natural gas industry, specializing in the exploration, development, and production of a variety of petroleum products.

The company has several important subsidiaries such as ONGC Videsh Limited, Mangalore Refinery and Petrochemicals Limited, Hindustan Petroleum Corporation Limited, HPCL Biofuels Limited, and Petronet MHB Limited. These factors position ONGC as a strong contender among the best PSU stocks for investment in India.

State Bank of India (SBI)

This financial institution is one of the largest public sector banks in India and plays a crucial role in the country’s economy. SBI reported earnings of Rs 1,64,914 crore and a net profit of Rs 21,384 crore in the fourth quarter of the financial year 2014.

 These significant increases were propelled by robust lending expansion and better asset quality. SBI's strong financial performance solidifies its position as one of the best PSU stocks in banks.

GAIL (India) Limited

GAIL, a top player in the natural gas industry, has a strong financial position with minimal debt and steady growth in net profits. Attracting long-term investors is the PSU stock with a dividend payout ratio of 43.8%.

In the final quarter of FY24, there was a substantial increase of 289% in net profit, totaling Rs 2,468.71 crore. GAIL's vast infrastructure aids India in moving towards cleaner energy, making it a prime option for investors looking for growth in this industry.

Key considerations before investing in PSU stocks

Before deciding to invest, it is important to take into account various aspects when considering PSU stocks for their stability and consistent income. Here are important things to remember:

 Dividend Yields

Consistent Dividends: Public Sector Undertakings (PSUs) are recognized for their stable dividend distributions, appealing to investors seeking regular income. Nevertheless, it is crucial to verify the dividend track record and longevity of these payments.

Dividend Policies: Familiarize yourself with the company's dividend policy and ensure it fits with your investment objectives, particularly if you seek consistent income.

Government Ownership and Influence

Political Risk: Companies owned by the government can be affected by political choices. Different administrations might alter policies, which could affect the performance of companies.

Strategic decisions in decision-making may sometimes give greater importance to national or political goals instead of profitability, potentially impacting shareholder value.

Market Performance

Stock volatility: Public sector stocks usually experience lower volatility compared to private sector stocks, although they are still influenced by overall market trends and economic conditions.

Historical Performance: Analyze the stock's past performance to grasp its growth path and ability to withstand market downturns.

Sector-Specific Risks

Industry Dynamics: A variety of state-owned enterprises are active in industries such as energy, banking, and utilities, each presenting unique risks and opportunities. For example, the energy industry may be influenced by shifts in oil prices, whereas banks can be impacted by fluctuations in interest rates and economic trends.

Regulatory Environment: PSU operations can be greatly affected by changes in regulations. For instance, energy companies can be influenced by environmental regulations, while public sector banks can be affected by financial regulations.

Financial Health

Examine the company's financial statements to evaluate its profitability, levels of debt, and cash flow. A solid balance sheet is essential for enduring sustainability.

Profit margins can be compared with industry competitors to assess operational efficiency and competitiveness.

FAQs

Q. Which PSU stock is undervalued?

A. We would suggest stocks like Engineers India and IRCON which are actually very, very undervalued PSU stocks and which have immense value.

Q. Which is India's No. 1 defence stock?

A. Hindustan Aeronautics Ltd (HAL) Hindustan Aeronautics Limited (HAL) is a leading Indian enterprise. It has a long history in the aerospace and defence industries, spanning eight decades.

Q. Which is the top PSU by profit?

A. State Bank of India: India's largest lender SBI is also India's most profitable PSU. Its PAT surged 20% to Rs 68,138 crore in FY24 from Rs 56,558 crore in FY23. It paid Rs 23,102 crore as taxes to the government exchequer.

Q. Which PSU gives bonus shares?

A. 3 Public sector undertakings (PSUs) operating in the sector of Gas & Petroleum will soon start offering bonus share to shareholders from June 21 till July 2, 2024. These PSUs are Bharat Petroleum Corporation, Hindustan Petroleum Corporation, and Oil India.

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