Understanding the trade of PSU stocks in the Indian stock market

Public Sector Undertakings (PSUs) have long been an integral part of the Indian economy. In fact, did you know in 1951, there were only 5 PSUs listed under the government's ownership? However, with time, the growth has been remarkable. One of the reports states that in the past 2 years, the M-cap of PSUs has grown by 4%. It has played an important role in shaping the country's industrial and financial framework. 

Now, as the Indian stock market continues to evolve, the significance of PSUs remains strong, particularly for investors who seek stability and growth. Today, let's understand everything about Public Sector Undertakings (PSUs), including why they are a significant part of Indian stock trading.

PSUs meaning: What are Public Sector Undertakings?

Public Sector Undertakings, commonly known as PSUs, are government-owned corporations in India. These entities are established by the Government of India, either through an Act of Parliament or as a company under the Companies Act. The government holds a majority stake of 51% or more in these enterprises, which ensures state control over their operations.

PSUs were created to help the Indian government achieve its socio-economic goals. These goals include generating employment, ensuring equitable wealth distribution, and providing essential services to the public. Over the years, PSUs have diversified into various sectors, such as energy, infrastructure, banking, insurance, and manufacturing.

The role of PSUs in the Indian economy

PSUs have been instrumental in driving India's economic growth since independence. They were initially established to spearhead the development of critical industries where private sector participation was limited. These undertakings helped build the foundation for India's industrial base, ensuring the country's self-sufficiency in key sectors like steel, oil, coal, and power.

As the Indian economy liberalised in the 1990s, the role of PSUs evolved. While they were once the sole players in many industries, they now operate alongside private enterprises, contributing to a competitive market environment. Despite the rise of private companies, PSUs continue to hold a dominant position in sectors such as energy, natural resources, and defence.

What is a PSU stock?

PSU stocks refer to the shares of public sector undertakings listed on the Indian stock market. These stocks offer you an opportunity to invest in companies that are majority-owned by the government. Given the government's backing and their strategic importance to the Indian economy, PSU stocks are considered relatively safe investments.

Investing in PSU of the Indian stock market is often seen as a way to gain exposure to stable and established sectors, such as energy, banking, and infrastructure.

These stocks are typically less volatile than private sector stocks, making them attractive to risk-averse investors. However, PSU stocks may also offer lower returns compared to their private counterparts. Do you know why it is so? Well, because their primary objective is only sometimes profit maximisation but fulfilling government policy objectives.

Types of PSUs in India

PSUs in the Indian stock market are broadly classified into three categories based on their financial performance and strategic importance:

1. Maharatna: These are the largest and most significant PSUs, with substantial market capitalisation and a strong presence in their respective industries. Examples include Indian Oil Corporation (IOC), Bharat Heavy Electricals Limited (BHEL), and Oil and Natural Gas Corporation (ONGC). Maharatna PSUs have greater autonomy in decision-making and investment, allowing them to compete globally.
2. Navratna: When it comes to PSU stocks trading in India, they have performed exceptionally well. In fact, they have been granted enhanced autonomy in operations that fall under the Navratna category. These companies are also leaders in their sectors but may have different market reach than Maharatna PSUs. Examples include Bharat Electronics Limited (BEL) and Hindustan Aeronautics Limited (HAL).
3. Miniratna: Miniratna PSUs are smaller in scale but have demonstrated consistent profitability over the years. Compared to Maharatna and Navratna companies, they are granted limited autonomy. Examples include the Airports Authority of India (AAI) and RailTel Corporation of India.

Importance of PSU stocks in the Indian stock market

The Indian stock market is diverse, with various sectors represented by both public and private enterprises. PSU stocks hold a unique position in this market, offering several advantages to investors:

1. Stability and Low Risk: PSU stocks are known for their stability, as they are backed by the government and operate in essential sectors. This makes them less susceptible to market volatility, providing a cushion during economic downturns.
2. Regular Dividends: PSU stock trading in India is known for paying regular dividends, making them attractive to income-seeking investors. These dividends can offer a steady income stream, especially in a low-interest-rate environment.
3. Long-Term Growth: While PSU stocks may not offer the high returns associated with fast-growing private companies, they do provide long-term growth potential. Sectors such as energy, infrastructure, and banking are expected to continue growing as India develops, making PSU stocks a sound investment choice for the long haul.
4. Government Support: The Indian government often extends financial and policy support to PSUs, ensuring their continued operation and growth. This support reduces the risk of business failure, providing additional security to investors.
5. Strategic Investments: PSU stock trading in India is often involved in strategic sectors crucial for national security and development. Investing in these companies allows investors to contribute to the country's growth while benefiting from the returns.

Making PSU investments in the Indian stock market

The Indian stock market offers many opportunities for investors to invest in PSU stocks. These stocks are listed on major exchanges like the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Investors can buy and sell PSU stocks through these exchanges using online trading platforms.

When trading stocks in India of PSUs, you must consider the company's financial health, sector performance, and government policies. Additionally, investors should diversify their portfolios to manage risk effectively.

As India's economy grows and evolves, trading stocks in India of the PSU companies are likely to remain key players in various sectors. With our platform, you can use our web or app platform or even call to trade. Create your account today.