From downturn to dominance: PSUs reclaim 17.3% India's market glory

The share of listed public sector undertakings/enterprises (PSUs/PSEs) in India’s total market capitalisation has surged to an impressive 17.3 per cent, reaching the highest point in nearly seven years. This marks a significant shift from 2022 when their share declined to almost single digits.
 

The Nifty PSE has more than doubled in the past year. An analysis by Elara Capital indicates that the PSU sector performs well during election years. “Empirical evidence suggests that in a general election year, the S&P BSE PSU Index rallies 14 per cent on average, with a tendency for returns to bottom out in February. After bottoming out and up until the results announcement day, the index has yielded a return of 22 per cent,” said a note from Elara Capital.

It added that further upside after elections could come from “value unlocking through disinvestment”. However, analysts caution against overly investing in PSU stocks as the surge in valuations could lead to a levelling off of returns.
 

Elara compared the current setup to the 2016–17 valuation period, which was followed by three years of negative performance. “This leads us to our cautiously optimistic stance, predicated on the belief that while the overarching bullish trend for PSUs may moderate, there remain pockets of opportunity that can provide a leg-up to the rally and deliver outsized returns,” it added.