By Nesil Staney
A stellar rally in stocks of public sector undertakings (PSUs) since the Covid years has increased their market share from 10.1% in FY22 to 15.3% at present, a rise also fuelled by the growth in profits that followed years of decline.
“Several PSU sectors are posting a sharp turnaround in profit and unexpected shareholder value,” said a research report from Motilal Oswal on Thursday. While some cyclical moderation occurred in FY25, key building blocks and an enabling environment for sustained performance for several PSUs look intact, it said.
PSUs posted an unprecedented a 36% compounded annual growth rate in profit after tax (PAT) during FY20-25, feeding into the 32% CAGR for the BSE PSU Index and a consistent expansion in PSUs’ share in overall profits to 38%. PSU profits jumped from Rs 1.2 trillion in FY20 to Rs 5.3 trillion in FY25, outpacing private sector and reversing its own underperformance from FY15 to FY20.
Motilal’s top PSU picks are SBI, HAL, BEL and PowerGrid. PSU market capitalisation surged from Rs 12 trillion in March 2020 to Rs 69 trillion in June 2025 – adding Rs 57 trillion in just five years after a decade-long stagnation between FY09 and FY20. Better capital efficiency, operating discipline and lower losses lifted the return on equity across the PSU universe, the report said.
Another interesting trend is that loss-making PSUs now contribute just 1% to the profit pool, down from 45% in FY18, reducing the drag on the overall profit. FY25 marked the fifth consecutive year of declining losses for these enterprises.
The contribution from the banking and financial (BFSI) sector rose from a paltry 7% in FY20 to 38% in FY25, boosted by cleaner balance sheets, improving NIMs and strong earnings visibility of public sector banks.
Defence and infra-related order flows have driven growth in capital goods PSUs with a 28% CAGR in profits over FY20–25. With fundamentals intact and macro tailwinds building, the next phase of re-rating is already underway, said the report, citing that valuations corrected to 11.7x forward price to earnings, down from the July 2024 peak of 13.8x.
The growth in PSU stocks took place despite their primary objective being to serve public interest rather than boost profits, said a recent report from domestic brokerage Groww. It named five PSU stocks with highest analyst ratings — NTPC, NHPC, Coal India, ONGC and Power Grid.
State Bank of India and Life Insurance Corporation are the two largest listed PSUs.