If you are looking for bargain buys, the brokerage firm, Motilal Oswal has given a ‘Buy’ rating to 5 public sector companies. While the BSE PSU Index saw sharp correction earlier this year, the brokerage believes many PSU stocks still offer attractive value, backed by improving profitability, better governance, and supportive policies.

Let’s take a look at these stocks and understand why the brokerage is bullish on these stocks-

Motilal Oswal’s top 5 PSU picks

The brokerage’s top PSU recommendations include:

State Bank of India (SBI)

Hindustan Aeronautics (HAL)

Bharat Electronics (BEL)

Power Grid Corporation of India

Coal India

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Motilal Oswal on PSU: From underdogs to market movers

According to Motilal Oswal’s latest report, the PSU story has changed a lot post-covid. Several companies posted profit growth, with the public sector universe delivering a 36% CAGR in net profit (PAT) during FY20-25. This in a way helped to push the BSE PSU Index up by 32% CAGR in the same period, far ahead of the Nifty’s 19% CAGR.

Looking at the improvement in overall profitability is more interesting. The loss-making PSUs, once a drag, now account for just 1% of the total profit pool, down from 45% in FY18.

Motilal Oswal on PSU: Valuation trends and market correction

The PSU Index hit an all-time market cap high of Rs 74 lakh crore in July 2024, before a broad market correction pulled it down by 31%. It has since recovered by 25%, but still trades 14% below its peak, according to the brokerage.

The P/E ratio of the BSE PSU Index stood at 11.7x in June 2025, lower than its July 2024 peak of 13.8x, but still above the 9.8x recorded in February 2025.

On the price-to-book front, PSUs were trading at 1.7 times on a 12-month forward basis in June 2025, compared to 2.1 times at the July 2024 peak.

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Motilal Oswal on PSU: “Building blocks still intact”

Despite some moderation in FY25, the report says the building blocks for sustained PSU performance remain strong. “PSU names in sectors with policy/demand tailwinds or structural growth potential should find a meaningful place in long-term investor portfolios,” the brokerage noted in its report.

Motilal Oswal also estimates that its PSU coverage universe, which accounts for 72% of India’s PSU market cap, will deliver a 10% CAGR in net profits over FY25–27. The growth is expected to be led by BFSI (53% of incremental profits), followed by oil & gas (20%) and metals (12%).

Motilal Oswal on PSU: Long-term growth drivers remain strong

Even with FY25 seeing a pause in momentum, the broader outlook stays positive. PSU RoEs (Return on Equity) stood at 16% in FY25, slightly down from 17.8% in FY24 but way above the 5.2% seen in FY18.

As per the brokerage, “continued earnings growth, supported by underlying RoE expansion, strong macroeconomic conditions, a favorable policy environment, a robust order book buildup, and a significant turnaround in governance and operational efficiency, has driven valuation expansion across PSUs over the past few years.”