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PSUs shine in FY24: 92% returns outperform Nifty 50’s 28%

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After years of underperformance, Public Sector Undertakings (PSUs) have surged ahead in FY24, delivering an impressive 92% return, far surpassing the Nifty 50’s 28% gain.

Key drivers of PSU growth:

  • Government’s infrastructure and capex push post-pandemic.
  • Cleaner balance sheets and improved governance.
  • Margin boosts for commodities.
  • Expanding order books.

PSU market cap growth

  • FY14-24: PSU market cap increased from Rs 14 lakh crore to Rs 66 lakh crore, a 16.66% CAGR.
  • Private sector: Market cap grew from Rs 55 lakh crore to Rs 323 lakh crore, achieving a 19.37% CAGR.
  • Overall Market Cap: India’s market cap soared from Rs 69 lakh crore in FY14 to Rs 389 lakh crore in FY24, currently at Rs 440 lakh crore.

Market share dynamics

  • FY14: PSUs held 20.8% of total market cap.
  • FY22: Dropped to 10.5%.
  • FY24: Rebounded to 17.5%, indicating potential for further growth.

Earnings surge

  • Profit Growth: PSU profits surged 4.3x from Rs 1.3 lakh crore in FY19 to Rs 5.5 lakh crore in FY24.
  • CAGR: PSU earnings grew at a dazzling 33.8% CAGR, compared to the private sector’s 18.6%.
  • Profit Pool: PSUs’ share of the profit pool expanded to 36% in FY24.

Sectoral highlights

  • Banking: Public sector banks cleaned up their balance sheets, turning a loss of Rs 30,000 crore in FY19 into Rs 1.6 lakh crore profit in FY24.
  • Contributors: BFSI sector accounted for 68% of PSU profits during FY19-24, with Oil & Gas and Metals contributing 21% and 5%, respectively.

The number of loss-making PSUs dropped significantly, contributing just 1% to the profit pool in FY24, down from 45% in FY18. Two-thirds of the PSU universe generated positive returns for five to seven years over the past decade, with 13 of the top 25 stocks belonging to the BFSI space.

The BSE PSU index reported a 45% CAGR, rebounding from a 9% decline during June 2014 to June 2020. As of June 2024, the index P/E ratio expanded to 12.8x, compared to Nifty 50’s P/E ratio of 22.4x. The PSU index continues to outperform, recording an 18% uptick, compared to Nifty 50’s 5.5% gain.

PSU stocks have made a remarkable comeback, showcasing strong potential for sustained growth and attracting investor attention with robust financial performance and strategic initiatives.

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