Shares of public sector undertakings (PSUs) have started attracting investors over the last few months. Even those who viewed them with antipathy are now having a fresh look at them, as most companies’ fortunes are in turnaround and future growth appears promising.

Banks led from front

First, there are sector-specific issues happening in their favour. For instance, the books of public sector banks, often plagued by NPAs due to lending to “fraudulent” corporates/individuals, look healthy, thanks to CIRP. Besides, big mergers (Allahabad Bank with Indian Bank, Syndicate Bank with Canara Bank, Oriental Bank and United Bank with Punjab National Bank and Corporation Bank and Andhra Bank with Union Bank of India) also helped PSBs cut costs.

PSU Bank index has jumped 54.70 per cent so far this year, outperforming Nifty Bank index by a huge margin that gave a return of 18.50 per cent.

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Centre reforms

The government’s commitment to boost manufacturing locally through production-linked incentives helped boost defence stocks. The likes of Hindustan Aeronautics, GRSE, BEL, BHEL, Bharat Dynamics and MDL have drawn the market’s attention due to healthy order book, thanks to the Atmanirbhar initiative.

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Likewise, reform initiatives for power sector (NTPC, PowerGrid, NHPC and PFC); recovery in commodity cycle and pick-up in demand for metal and mining (Midhani, SAIL, Coal India and MOIL); subsidy for fertilisers; and higher spending in infrastructure boosted these sectors.

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Dividend yield

Another common factor is dividend yield, as most of the stocks are attractive from the dividend perspective.

Dividend yield for IRFC, REC, PFC, HUDCO, GAIL India, BPCL, NMDC, Coal India, Oil india , Nalco, IOC and Hindustan Zind stands well above 6 per cent, even after the recent gains. The risk-free return given by these firms helps them beat banks’ fixed deposit.

Bullish market

The bullish sentiment towards market also helped PSU stocks largely. The Sensex, Nifty and Nifty Bank hit their peaks this week. However, on return perspective, BSE PSU index has jumped 22 per cent so far, outclassing almost every index, such as Sensex (6.3 per cent), Nifty (6 per cent), Nifty Midcap 50 (5.51 per cent); Nifty Next 50 (4.23 per cent), BSE Midcap (4.27 per cent) and BSE SmallCap (0.35) per cent.

The moot question now is, will the PSUs be able to build on the momentum. However, that depends upon a few factors.

There is always a disinvestment threat by the Centre. Any offer-for-sale by the Union government affects the share price. No doubt, disinvestment shores up the government finances. However, despite missing the government’s disinvestment target of ₹65,000 crore this fiscal, its revenue remains robust and beats Budget estimates. Also, PSUs have paid healthy dividends to the government kitty.

Concerns remain

So, instead of hurriedly rushing through disinvestment, the Centre can wait and do it in small doses without interrupting the price movement or other strategic measures.

The government should also raise the bar on corporate governance in PSUs, especially appointing independent directors and composition of their audit committees.

Besides, often the PSU management is accused of slowness in decision making, when it comes to corporates. It’s time for the CEOs/managers of PSUs to bite the bullet and take decisions on time.

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