PSUs running hot on the Street push up m-cap share to 13%

India’s market cap stood at ₹281 lakh crore on Thursday as against ₹58 lakh crore in FY12. PSUs’ market cap increased to ₹37 lakh crore from ₹16 lakh crore in FY12, while the private sector market cap rose to ₹252 lakh crore from ₹41 lakh crore.

“A large part of the FY12-22 decade was spent cleaning up the balance sheets and financials, which took its toll on the overall PSU profits as PSU banks formed one-third of the profit pool of Indian PSUs,” said Gautam Duggad, head of research,

. “The government’s emphasis on localisation and make-in-India in the defense sector has catalysed the improvement in fortunes of industrial PSUs. Consequently, we expect this recovery in PSUs’ contribution to both – profits and market-cap – to sustain.”

The BSE PSU index surged 21% in 2022 compared to the 4.4% gains in the Sensex. PSUs such as , , , , Bharat Dynamics, , Punjab & , Fertilizers & Chemicals Travancore (FACT), , Garden Reach Shipbuilders among others have rallied between 100% and 200% in 2022.

During FY12-17, overall PSU profits declined by 5% on a compounded basis, and the BSE PSU index returned 3.3%. Between FY17 and FY22, profits of these state-owned companies expanded 22% on a compounded basis while the BSE PSU index has remained flat. About half of these incremental profits came from PSU banks alone, while metals contributed 30%.

“Aggressive provisions on past high non-performing loans have cleaned up the balance sheet of the banks in a major way,” said Anusha Raheja, analyst Dalal & Broacha Stock Broking. “We expect strong profitability to continue going forward as well as driving their return ratios; hence, valuation re-rating is likely to continue as well.”