Indian PSUs hold immense investment potential, experts bullish on defence and mobility

Once virtually written off by the market participants, Indian public sector companies operating in all domains are doing a stellar job in the stock market lately. The interest in Indian PSUs has returned over the past years, with many of them accumulating multifold returns for their respective shareholders.

The talks around PSUs doing well got fresh air recently after Prime Minister Narendra Modi, in an interview with TV channel NDTV last week, outlined how values of the PSUs, particularly banks, are increasing in the stock market.

"When our government took over, the markets were at 25,000 and now they are at 75,000," PM Modi had said. "See the PSU banks, their value is increasing in the stock market."

"Wait and watch on June 4; the programmers behind the stock market will get tired of the action," said PM Modi in the interview. He indicated the financial markets will set new records after June 4 - the day the Election Commission will count the votes of the seven-phase Lok Sabha elections.

Pointing out criticism by opposition parties that the BJP was destroying public-sector undertakings, PM Modi, in that interview, cited the example of state-run aircraft maker Hindustan Aeronautics Ltd, which posted a profit of Rs 4,000 crore in the quarter that ended in March 2024.

HAL shares have risen over 200 per cent over the past year, and over 1,300 per cent over the past five years, mostly because of an aggressive indigenous defence manufacturing push by the government. The same goes for the other defence PSUs such as BEL and BDL.

Technology transfer, multinationals tying up with Indian manufacturers, Make in India, and Production-Linked Incentive are hosts of tailwinds that are associated with the order flow seen in the defence sector, said N Jayakumar, MD and Group CEO, Prime Securities, in an interaction with NDTV Profit on Tuesday morning.

"As long as the order flow continues the growth here is just a function of our imagination," Jayakumar asserted.

N Jayakumar, MD and Group CEO, Prime Securities, said, "One of the best-performing baskets of portfolios over the last several years has been the PSUs...It's been a disbelievers rally and it kept getting stronger."

With a stellar performance in the PSU space, Jayakumar asserts that "a lot more of divestment and a lot more on revenue gathering front can happen."

"I think a lot more on divestment will and can happen," Jayakumar added.

Abhay Agarwal, Founder, Piper Serica Advisors, is also of the view that defence space has remarkable opportunities, particularly for exports. Agarwal is also bullish on the mobility sector, including the railways.

"Within the PSU basket, there are opportunities that are still there for the long-term investors," said Agarwal, speaking to NDTV Profit.

On the overall remarks that the PM made on the economic front, Agarwal said, "It is quite refreshing to see the prime minister address the fact that private capital formation is important for economic growth. If you have the target to grow the GDP 8-9 per cent over the next decade and get India to where it should get to. Then it is very important for private capital formation to take place."

Investors and entrepreneurs who are forming private capital must be incentivized, Agarwal suggested.

"It is a refreshing message (from the PM) to everybody that the government is not going to shy away from focusing on growth. Getting India into a virtuous cycle is very important because GDP growth cannot happen in isolation...I think it is great that the PM did this and put the economic agenda in an environment where politics is kind of taking over every conversation."
Notably, the BSE PSU index is up over 100 per cent in the past year, against Sensex's 20 per cent run during the same period.

"Let's say railway PSU stocks, there are four or five of them, the opportunity is 10x of what we have done so far. Despite the number of Vande Bharat and other trains rolled out, the amount of mobility demand is still there. Giant opportunity is there...I think there are tremendous opportunities in mobility and defence," Agarwal said.

On opportunities in the green energy domain, Abhay Agarwal said how the government is particularly focused on making the country energy-independent and added there is immense potential in this space.

"The focus of the government is on making sure, whether is a PSU or a private sector company which are doing these large projects, are given to people who have the capabilities," he explained.
India meets a sizable portion of its energy needs through fossil fuels, and various renewable energy sources, are now seen as an avenue to reduce the dependence on conventional sources of power.

At COP26 held in 2021, India committed to an ambitious five-part "Panchamrit" pledge. They included reaching 500 GW of non-fossil electricity capacity, generating half of all energy requirements from renewables, to reducing emissions by 1 billion tonnes by 2030.

India as a whole also aims to reduce the emissions intensity of GDP by 45 per cent. Finally, India commits to net-zero emissions by 2070.

About 44 per cent of India's energy requirements at present come from non-fossil sources and are likely to touch as high as 65 per cent by 2030, much higher than what the country pledged at the COP summit in 2021.

Asked whether investors should only bet on big players in this sector, Abhay Agarwal said, "In green energy, you have to bet only on the big boys. There are no small players. This space is all about having access to large capital and execution capabilities. Both these have to come together."