Global volatility, not the government, can cause a PSU Renaissance

Copyright © HT Digital Streams Limit all rights reserved. Markets One of the main concerns about PSUs is their elongated execution time lines, which create major backlogs in their order books. Summary While the persuasion of government may not attract investors to PSUs, compelling valuations and strong growth prospects may make the effort in the midst of global uncertainties. There is a growing buzz around the public sector companies (PSU) in D-street. The global uncertainty unleashed by US tariff tantrums has strengthened investor interest in these domestic focused, state-supported players, especially after the recent battle over market correction. In fact, Arunish Chawla, secretary of the Government’s Department of Investment and Public Asset Management (Dipam), recently called on fund managers to include PSUs in their portfolios during a media briefing, which designated their high dividend generating capabilities. He pointed out that state -owned firms had a record of £ 1.5 billion dividends to the government in FY25. For FY26, the government expects to receive £ 69,000 in PSU dividends. However, experts warn against the attractiveness of high dividend returns, as it could lead to investors wandering to choose non-performing companies at a time when a broad rally in PSU shares is very unlikely. Read more: SEBI plans that increase the exposure to MF in Reit’s, invitations; Experts flag tax concerns about it comes as retail investors continue to reach a peak under the BSE PSU index’s 19% of its 52-week peak, a peak during a two-year overheating. Their enthusiasm for PSUs has since decreased, despite the index currently surpassing the Sensex. Therefore, the experts can be noticed to attract them back to PSUs with the promise of dividends. Dividend illusion “Dividends protect your disadvantage. But they never drive back into stocks. Revenue growth does it, and dividends cannot be the only argument to invest in PSUs,” Dhimant Kothari, fund manager at Invesco MF, told Mint. A Munt analysis of the BSE PSU index ingredients revealed that their total net profit in FY24 grew by 44%. In comparison, dividend payments increased by about 28% (after a decline in the previous year), which led to a 13% dividend payout ratio. The median payout ratio for these PSU shares over the past six years was 20%. Kothari pointed out that PSUs were constantly derived between FY18 and FY20, despite the fact that the dividend yields are as high as 7-8%. This means that the PSU’s propensity to pay higher dividends each year comes at the expense of lower reinvestments in capacity expansion, which can lead to poor execution capabilities. One of the biggest concerns about PSUs is their elongated execution time lines, creating great backlog in their order books. Ventura’s research head Vinit Bolinjkar, a stockbroker firm, said they should spend more on building capacity and the ability to deliver faster. “Indian PSUs have enough structural levers to generate good returns on capital investment as they reinvest these profits. By giving them as dividends, they take some returns from their growth,” emphasizes Anil Rego, founder and fund manager right Horizons PMS. Rego also pointed out that since dividends are also a critical part of the government’s revenue that is not tax, these companies intend to pay higher dividends each year. However, it may be little appeal to investors, especially individuals with a high net world, as their dividend income is now being taxed on their respective income tax pages in accordance with new rules established in the Finance Act 2020. Rego adds that it makes dividends even more ineffective, and that they should never be the driving force behind the investment in PSUs. Second look, but there is a hidden draw. Attractive valuations and strong growth trajectories have recently increased the attraction of selected PSUs, especially if the broader market handles the larger global volatility. Ventura’s Bolinjkar noted that investors are looking for good revenue visibility, government support and low leverage in balance sheets when choosing PSU shares, which are currently trading with a bargain. Experts believe that players from the defense, power, utility, utility and renewable energy sector seem to be profitable with banks in the public sector (PSB). “We expect about 14-16% earnings growth for PSUs between FY26-30, and they are relatively isolated from global macroeconomic turbulence-especially the PSBs,” said Kothari of Invesco Mutual Fund. “As for the visibility of earnings for the next few years, the sector of the power, utility and defense is best placed. From a long -term perspective, even railway companies look attractive,” he added. Read more: Beyond the Tariff Rate: Where can investors find lasting protection? Ajit Mishra, senior vice president of research at Religare Broking, said defense companies stand out with a strong growth potential among the tempting PSUs. This is fueled by increasing government budgets, a pressure on indigenous, rising exports and favorable geopolitical dynamics. In fact, Hindustan Aeronautics Ltd (HAL) won orders worth £ 62,700 from the government last month – the largest order in terms of value, where it will deliver 156 light combat helicopters to India’s armed forces. Government Project Awards, in any case, double up to £ 2.25 trillion at a year-on-year (yoy) base in March, sharp above the FY25-month average of £ 1.05 trillion, according to a recent report by the JM Financial Services. Select Psus receives orders, but only defense and power sector projects dominated the latest government orders, indicating a bakkie in spending in certain critical infrastructure areas. While roads, water and subway segments saw subdued tender activity in Q4FY25, the project awards for the power transfer and distribution and renewable sectors remained strong, as the government is currently meeting the expected increase in India’s power demand, HDFC security has noticed. Furthermore, Elara Securities expects power companies to report strong earnings in the fourth quarter as the start of summer and an increase in the peak power question in the March quarter. However, retail investors do not currently remain convinced. Infrastructure, energy and power funds saw their first outflow in two years in March, which was also the greatest salvation to the Koovid, a report by Elara Securities. While the inflow into pure share schemes last month delayed to a one -year low, thematic and sectoral funds were the largest slowdown, with a slight inflow of £ 170 in March, which collapsed a £ 22,400 inflow in June. Mishra of Religare Broking believes that a hybrid strategy at this time – which focuses on consistent dividend payers, can selectively identify PSUs with growth catalysts – can help investors stability and potential in the future. Catch all the business news, market news, news reports and latest news updates on Live Mint. Download the Mint News app to get daily market updates. More Topics #PSU Funds Mint Specials