Best PSU Stocks in India: On What Basis Are They Classified?

Best PSU Stocks in India: An Overview

Due to centuries of slavery and exploitation, India's economy and society were in disarray after independence. There was a significant disparity in income, regional economic development lagged behind the rest of the country, and unemployment was rampant. In addition, India's fundamental framework was weakened by its weak industrial base, inadequate investments, lack of infrastructure facilities, and lack of educated people resources or technological backwardness. At the time, many looked to the public sector as a tool for fostering economic growth that could sustain itself independently. Consequently, the country pursued a path of planned economic development in which PSUs played a significant role.

What are PSU Stocks?

Public sector undertakings (PSUs) are intimately tied to the economy's primary sectors and have built a solid industrial basis. Indian government owns these companies. Nation-building depends on the economy's main sectors, establishing the correct tone. Finance, coal, capital goods, infrastructure, oil, power, metal, and mining are core sectors. PSU company market caps exceed Rs 10 lakh crore. PSUs regularly pay government dividends, excise, customs, and corporate taxes.

Classification of PSUs in India

There are three main types of PSUs or public sector organizations

CPSEs or Central Public-Sector Enterprises

CPSEs are businesses where the Central Government or another CPSE owns 51% or more of the capital shares. There are two types of Central Public-Sector Enterprises (CPSEs): 

• Strategic CPSEs 
• Non-strategic CPSEs

Arms and ammunition, military hardware, military aircraft, and other defense-related commodities, as well as the atomic energy sector and the railways transport sector, are strategic central public-sector enterprises (CPSEs). All other CPSEs are classified as 'non-strategic'.

PSBs or Public-Sector Banks 

These are financial institutions where the Central Government or another PSB owns at least 51% of the voting stock.

SLPEs or State-Level Public Entities

These are corporations where the state government or another SLPE owns 51% or more of the capital shares.

There is a further classification of Maharatna, Navratna, and Mini Ratna companies in the sector of PSUs.

Maharatna Companies

This system's highest status for a firm is Maharatna. Thus, a Maharatna firm must meet specific criteria.  Maharatna businesses must have an average three-year turnover of Rs 20,000 crore. Net worth should average Rs 10,000 crore annually. Finally, Maharatna status gives a company more financial and administrative autonomy, allowing it to grow globally. From 1,000 crores to 5,000 crores, the Maharatna company's board can invest without government approval. Maharatnas can invest 15% of their net assets in a project. Currently, a total of ten companies in India qualify as Maharatnas. The psu stocks list of Maharatna Companies is given below:

• NTPC
• ONGC
• SAIL
• BHEL
• IOCL
• HPCL
• CIL
• GAIL
• BPCL
• Power Grid Corporation of India.

Navratna Companies

Navratna companies must be a Schedule ‘A' Miniratna category-1 firm. Second, a five-year record of at least three "Excellent" or "very good" Memorandum of Understanding (MoU) evaluations. Navratna companies can invest 15% of their Rs 1,000 crore net value on a single project without government clearance. Navratna companies can spend 30% of their net worth up to Rs 1,000 cr annually. Navratna companies can form alliances, joint ventures, and foreign subsidiaries. Currently, a total of fourteen companies in India qualify as Navratnas. The psu stocks list of Navratna Companies is given below:

• Bharat Electronics Limited (BEL)
• Container Corporation of India Limited
• Engineers India Limited (EIL)
• Hindustan Aeronautics Limited (HAL)
• Mahanagar Telephone Nigam Limited (MTNL)
• National Aluminium Company (NALCO)
• National Buildings Construction Corporation (NBCC)
• National Mineral Development Corporation (NMDC)
• NLC India Limited (NLCIL)
• Oil India Limited (OIL)
• Power Finance Corporation (PFC)
• Rashtriya Ispat Nigam Limited (RINL)
• Rural Electrification Corporation (REC)
• Shipping Corporation of India (SCI)

Mini Ratna Companies

Miniratna category – I

The CPSE must have profited for three years to become Miniratna Category-I. At least one of the last three years should have had a pre-tax profit of INR 30 crores or higher and a positive net worth. Miniratnas can form joint ventures, subsidiaries, and overseas offices under certain conditions.

Miniratna Category-II

This category of PSEs can spend up to Rs 300 crore or 50% of their net worth on capital investment without government clearance.

Best PSU Stocks in India

(Share price as on 14th October 2022)

Disclaimer: The securities quoted are exemplary and not recommendatory. Past performance is not indicative of future returns
 

Conclusion

Only six of the 42 BSE PSU Index businesses with a 10-year trading history have beaten the Sensex over the past decade. Only three of the 45 index businesses with a five-year trading history have outperformed the Sensex in the last five years. PSU equities usually have excellent P/E multiples. The government supports the PSU companies listed in nse. The government won't let them fail. But still, PSU enterprises often underperform. Many pay handsome dividends. 29 of the 57 BSE PSU Index companies had a dividend-payout ratio greater than 30%, while 19 had a dividend yield greater than 5%. (as of July 22, 2022). Thus, dividends entice. Capital losses cancel attractive dividends. Strategic PSUs have near-monopolies. In such cases, decision-making for the consumers is complex. It's wise to go elsewhere due to bad performance. If you're a smart investor, you might tactically add the PSU stocks india to your portfolio.

This is not an investment advisory. The blog is for information purposes only. Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, goal, time frame, risk and reward balance, and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs. The performance and returns of any investment portfolio can neither be predicted nor guaranteed.