PSBs, power stocks lift BSE PSU index by 11% in 1 month, near record high

The BSE PSU index hit a fresh 52-week high of 22,583.56 in Wednesday's intra-day trade, inching towards its all-time high level of 23,018.87 on August 1, 2024

Shares of state-owned companies were in demand on Wednesday, with the BSE PSU index hitting a fresh 52-week high of 22,583.56 in the intraday trade. The index has near its all-time high level, touched in August 2024.

 

Currently, the BSE PSU index is trading at its highest level since August 2, 2024 on the BSE. The PSU index had hit a record high of 23,018.87 on August 1, 2024.

 

The BSE PSU index is designed to measure the performance of public sector undertakings (PSUs) as defined by BSE Ltd. It was launched on June 4, 2001.

 

In the past one month, the BSE PSU index has outperformed the market by soaring 11 per cent, as compared to less than 2 per cent rise in the BSE Sensex. State-owned banks, refineries, and power generation companies have seen a sharp run in the past one month.

 

Among individual stocks, Engineers India, Shipping Corporation of India, and HMT rallied in the range of 30 per cent to 33 per cent, while Power Grid Corporation, Power Finance Corporation of India, Indian Oil Corporation and NTPC surged between 15 per cent and 23 per cent in the past one month.

 

PSU bank stocks rally

Separately, the BSE PSU Bank Index has recently scaled a fresh all-time high, driven by strength in large-cap PSU banking stocks. 

 

"Importantly, the momentum is now broadening, with several mid-cap PSU banks delivering decade-long breakouts, signaling structural participation beyond the frontline names," technical analysts at ICICI Securities said.

 

Among PSBs, State Bank of India (SBI) and Indian Bank are trading at their respective all-time highs. In the past one month, these stocks have zoomed 19 per cent and 13 per cent, respectively.

 

Investors have seen a change of fortune for PSBs in the last 5–6 years in terms of profitability, balance sheet strength, business growth, market share, and valuations. A lot of this has been due to sectoral tailwinds on corporate asset quality, institutional reforms by the regulators/government and deep capital infusion. The importance of governance revamp cannot be under emphasised in the robust turnaround of the PSBs, analysts said.

 

"Prospective mergers among PSU banks (PSBs) have recently become a prominent topic. In the earlier round, a merger was arguably essential to revive the target PSU bank, as it was likely burdened by non performing assets (NPA) and poor profitability. Presently, smaller banks stand on a strong footing, on both balance sheet and profitability",ICICI Securities said.  CHECK Stock Market LIVE Updates 

Power stocks in demand

 

Meanwhile, the brokerage firm believes that as power demand continues to grow at 5-6 per cent annually, India may need to add more thermal capacity to meet the medium-term demand. NTPC is likely to add to this thermal capacity. FY27-F28 will see strong capacity addition of 8 gigawatt (Gw) each in renewable side whereas thermal side will witness capacity addition of 1600 Mw and 2000 Mw, respectively.

 

Analysts on defence sector outlook

The order pipeline remains strong and analysts at ICICI Securities believe the defence sector is expected to thrive in the coming years due to faster acquisition processes, greater indigenization & advanced indigenous systems.

 

However, over the past month, state-owned defence stocks like Bharat Dynamics and Hindustan Aeronautics have underperformed the market, falling 11 per cent and 7 per cent, respectively.

 

Putta Ravi Kumar, defence analyst at Choice Institutional Equities, on the other hand, believes this decline appears sentiment-driven rather than fundamental. 

 

"The recent incident involving the HAL Tejas has triggered near-term risk aversion, leading to profit booking across defence companies. However, a single operational incident does not alter the structural demand outlook, execution pipeline, or order visibility for the sector,". he said, viewing the weakness as largely technical and sentiment-led.

 

Capital goods stocks

 

Meanwhile, public sector capital spending has expanded sharply over the past two decades. It is projected at ₹28.4 trillion in FY27 (₹25.6 trillion in FY26), growing by 10.9 per cent (vs. 4.6 per cent Y-o-Y in FY26). The recent acceleration has been particularly strong after FY20, led by a sustained push from the Centre and steady expansion in states' capex. 

 

While PSU spending has remained relatively stable in recent years, the overall investment cycle is now being driven primarily by general government capex, according to Motilal Oswal Financial Services.

   

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