2024 Review: BSE PSU index soars 23%, extends gains to 4th year. Which stocks led the rally?

Indian PSU stocks extended their winning streak to the fourth consecutive year in 2024, as the demand for state-owned stocks remains robust, driven by strong financial performance, policy continuity, political stability, strong order flows, and investor confidence.

However, the stocks displayed mixed performance. In the first half of the year, they maintained a steady bull run, but the rally stalled and took a downturn in the second half due to concerns over a slowdown in government capital expenditure. Nevertheless, the strong first half has supported the BSE PSU index, allowing it to end the year with strong returns.

The BSE PSU index, tracking 63 companies, has surged from 15,650 to its current level of 19,115, marking a robust gain of 3,557 points, or 23%. This was impressive, as the index concluded the previous year with a 55.30% gain, indicating that investors continued to add stocks to their portfolios without engaging in significant profit booking.

Over the last four years, the index has zoomed from 5,781 to the current trading level of 19,115, resulting in a massive gain of 231%.

These stocks have been garnering significant investor interest, buoyed by government initiatives such as Make in India, increased capital expenditure, and efforts to revitalise the banking sector. These factors have propelled the stocks to unprecedented heights, resulting in elevated valuations.

Despite the rich valuations, stocks continue to attract significant interest from investors this year, especially after the formation of the BJP-led NDA government for a third consecutive term, which reassured investors that capital expenditure is set to continue until 2029.

Despite the significant rally, analysts are also maintaining a bullish outlook on PSU stocks, led by a rise in capex. PSU companies are expected to be significant beneficiaries of the government’s increased capital expenditure. 

BSE PSU Stocks: Top gainers & losers

Among the 63 constituents, 51 stocks (81%) are set to finish the year with positive returns, while the rest, including Jammu and Kashmir Bank, GuJ Mineral, Mishra Dhatu, and nine other stocks, are on track to end the year in the red.

Among the best-performing PSU stocks in 2024 was Rail Vikas Nigam, which gained another 136% this year after rallying 166% last year. Since its listing in 2019, the stock has been in a continued bull run, ending each of the following five years in positive territory.

This year, the stock also crossed the ₹600 mark for the first time, touching a fresh record high of ₹647 per share. Cochin Shipyard emerged as the second top performer in the index, with a gain of 116%, building on a 153% gain from the previous year.

Other shipbuilding stocks, such as Mazagon Dock Shipbuilders and Garden Reach Shipbuilders, are set to wrap up the year with gains of 106% and 78.28%, respectively. Some other stellar performers, including IFCI, Indian Renewables, HUDCO, NBCC (India), Oil India, Nalco, Bharat Electronics, General Insurance, Hind Petro, HAL, and IRFC, have all gained between 50% and 111% so far this year.

Can PSU stocks rally more?

Domestic brokerage firm Elara Capital in its recent report emphasized that any concerns about the PSUs' performance due to the moderation in capex are unwarranted. The brokerage remains structurally and cyclically positive on the PSU sector, as it expects a strong recovery in the asset cycle, which, in turn, will result in a robust earnings cycle for the next three years.

This is because a PSU asset cycle follows the GOI spending cycle with a two-year lag, thereby lending the brokerage confidence that the cycle is not done yet.

The government’s capex cycle is expected to remain visible throughout this decade, with the government focusing on the debt-to-GDP ratio as its ‘fiscal anchor.’ The brokerage forecasts an improvement in the GOI capex-GDP ratio, expecting it to rise to 3.7% by FY30E and further to 4.0% by FY33E, compared to 3.4% in FY25E.

Additionally, the policy drivers remain intact, and sectors with policy triggers and funding support remain highly compelling, it added.

Within the listed PSU universe of 59 stocks, 18 meet the brokerage's investment criteria, which include policy support, funding visibility, execution capability, and operational efficiency. The brokerage is currently 'overweight' on SBI within PSU Banks, as it believes the bank's robust savings deposit metrics position it on par with large private banks.

The brokerage's other top picks include GAIL and OMCs in the energy sector and NTPC and Coal India, among utilities. The brokerage notes that NTPC and Coal India are well-positioned to capitalise on the ongoing thermal asset cycle expansion.

Among Oil and Gas PSUs, the brokerage is most constructive on GAIL India, citing the visibility of 8-10% growth in gas transmission volumes, supported by the continued gasification of the economy. In the OMC space, it prefers HPCL due to its relatively high share of petrol and diesel sales compared to its peers, which offers higher tailwinds in a declining crude oil price scenario.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.