PSU names in sectors with demand tailwinds or structural growth potential should find a meaningful place in long-term investor portfolios, MOFSL said on Thursday as it picked State Bank of India (SBI), Hindustan Aeronautics Ltd (HAL), Bharat Electronics Ltd (BEL), Power Grid and Coal India Ltd as its top PSU stock bets.
The market capitalisation of the BSE PSU Index hit an all-time high of Rs 74 lakh crore in July 24, driven by consistent re-rating trends. It then declined by 31 per cent to Rs 51 lakh crore in February this year amid the broad market correction before recovering 25 per cent to Rs 64 lakh crore in June 2025.
“The index’s current market capitalisation stands 14 per cent below its all-time high (up 5 per cent in CY25YTD). Owing to the market correction (between Oct’24 and Mar’25), the P/E ratio of the BSE PSU Index has come down to 11.7 times as of June 2025 from 13.8 times in July 2024, though it is up from 9.8 times in February 2025,” MOFSL said.
To be sure, the PSUs posted a strong 36 per cent profit growth compounded annually over FY20-25, feeding into the 32 per cent growth for the BSE PSU index and a consistent expansion in PSUs’ share in overall profits to an impressive 38 per cent. While some cyclical moderation did set in in FY25, key building blocks and an enabling environment for sustained profitable performance for several PSUs look intact, MOFSL said.
For its PSU coverage universe, which account for 72 per cent of India’s PSU market cap, MOFSL estimated a 10 per cent profit growth compounded annually over FY25-27, primarily driven by the BFSI and oil & gas sectors, based on conservative assumptions relative to the FY25 base.
“Logistics, capital goods, and metals are also expected to contribute positively. incremental profit growth is likely to be led by BFSI (53 per cent), followed by O&G (20 per cent) and Metals (12 per cent),” it said.
MOFSL said earnings momentum and forward guidance, particularly for PSU banks, have seen a slight moderation, PSU valuations should continue to trade at a premium to their long term averages.
“That said, with overall valuations having eased from their 2024 highs, further upside is likely to be concentrated in segments where actual earnings delivery is in line with or exceeds stated guidance,” it said.
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