As of the latest figures, at least 13 PSU stocks have achieved multibagger status, delivering impressive returns of up to 267%
Public Sector Undertaking (PSU) stocks in India have experienced a stellar surge throughout 2023, leaving their private counterparts behind. Fueled by a robust government capital expenditure initiative, these stocks have not only turned multibaggers but have also set new records in terms of returns and lifetime highs.
As of the latest figures, at least 13 PSU stocks have achieved multibagger status, delivering impressive returns of up to 267%. What’s more, a staggering 27 PSU stocks have hit fresh lifetime highs, with December alone witnessing 19 of them achieving this milestone.
The S&P BSE PSU index has been a standout performer, rallying over 50% year-to-date and reaching an all-time high of 15,531 earlier this week. In stark contrast, the benchmark Sensex has posted modest returns of just over 16% during the same period.
December saw a significant uptick in the gains of PSU stocks, with 28 of them recording double-digit increases. This surge was notably attributed to the strong electoral performance of the Bharatiya Janata Party (BJP) in the state assembly elections of Chhattisgarh, Madhya Pradesh, and Rajasthan.
Government capital spending in the current fiscal year has grown by an impressive 34% on a year-on-year basis, slightly below the budgeted estimate of a 36% full-year growth.
Leading the charge in the best-performing PSU stocks were companies from the infrastructure and power sectors. REC and Power Finance Corporation, with returns exceeding 250�ch in 2023, secured the top positions. Others, including Power Grid Corporation, NHPC, Coal India, NTPC, Bharat Heavy Electricals, and SJVN, posted substantial gains ranging from 43% to 110%, buoyed by robust domestic power demand.
In response to escalating power demand and the limitations of renewable energy alone, the power ministry recently increased its thermal capital expenditure target to 50-55GW, up from the initial 30GW.
Rail-related companies within the infrastructure space experienced a phenomenal run, propelled by significant government spending on rail and metro projects. Stocks of IRCTC, Rail Vikas Nigam, IRCON International, and Indian Railway Finance Corporation recorded gains between 36% and 182%.
“Railways, being a crucial component of infrastructure, are poised for significant growth in 2024 too. Government investments and policies to modernize the railway network, improve safety, and enhance passenger experience are expected to drive this sector’s performance. Notably, Railway Minister Ashwini Vaishnav has recently announced the launch of 3000 new trains, which demonstrates a commitment to expanding and improving the railway network. Investments in railway infrastructure can have a multiplier effect on related industries, making it an attractive opportunity for investors,” said Anirudh Garg, Partner and Fund Manager at Invasset.
Beyond power and infrastructure, sectors that garnered substantial investor attention included defence and aerospace. Bharat Dynamics, Bharat Electronics, Cochin Shipyard, Hindustan Aeronautics, and Mazagon Dock Shipbuilders saw impressive gains of 52-125% in 2023.
The Defence Acquisition Council’s recent approval of a Rs 2.23 lakh crore proposal for the Indian Armed Forces, focusing on fighter jets and combat/utility helicopters with 98% localized products, is expected to provide a substantial boost to the Indian defence ecosystem. Analysts predict continued outperformance in 2024 for rail-related and defence sectors, driven by the government’s commitment to technological upgrades and equipment replacement.
Garg also said that, we hold a bullish outlook on defense stocks for various reasons. The substantial surge in this sector can be attributed to the strategic implementation of the Defense Production and Export Promotion Policy 2020. This policy sets ambitious targets, aiming for a domestic defense production value of Rs 1,75,000 crore and $5 billion in defense exports by 2025, acting as a significant growth driver.
“It promotes mandatory sourcing notifications from domestic companies and fosters collaborative initiatives for Make in India and technology transfer. The defense sector’s order books currently exceed 4-10 times the company’s revenue, indicating robust macroeconomic fundamentals and high demand. Moreover, companies anticipate substantial profits from opportunities valued at $110 billion over the next six to eight years, surpassing the combined revenue of $8 billion in FY23,” Grag said.
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