Once the toast of equity markets, public sector stocks have seen their momentum stall in 2025. The 63-stock BSE PSU Index has declined nearly 12 per cent over the past year, sharply under-performing the benchmark Sensex, which inched up 1.3 per cent.
This has led to a wealth erosion of ₹10-lakh crore, with the combined market capitalisation of PSUs dropping to nearly ₹64-lakh crore. Moderation in earnings growth and weakness in segments exposed to global commodities and energy prices have hit the momentum. Only select pockets, such as defence, have bucked the trend.
To be clear, PSU stocks — though favourites of dividend-seeking investors — remained stuck in a range for several years. The PSU Index hovered between 5,000 and 10,000 levels from FY10 to FY19. During the Covid crash, it sank to the 4,000 level before a stunning post-pandemic rally saw PSU stocks deliver outsized returns. The index surged 50 per cent in FY21, 28 per cent in FY22, and 10 per cent in FY23. The momentum peaked in FY24 with a massive 92 per cent gain for the index.
Earnings growth
The PSU price rally was backed by earnings growth. Between FY20 and FY25, PSUs posted a 36 per cent CAGR in net profit, raising their collective share in India Inc’s total earnings to 38 per cent, an all-time high.
From being under-owned and under-valued, many PSU names saw a re-rating driven by strong earnings, governance improvements, and reform-led tailwinds.
That momentum, however, appears to have paused. According to Capitaline data, consolidated profit for the BSE PSU Index declined 2.3 per cent in FY25, pulled down by a high base (FY24 PAT had jumped 49 per cent year-on-year) and weaker profitability of the oil and gas sector. PSU majors such as MRPL, CPCL, IOCL, ITI, HPCL, MMTC, BPCL, and ONGC posted sharp year-on-year profit drops of 30-90 per cent. Oil PSUs appear to have borne the brunt of crude price volatility and refining margin compression.
The recent slowdown in profit growth, along with the sharp run-up in PSU stock prices, prompted investors to book profits. As many as 8 out of every 10 BSE PSU index stocks delivered negative returns over the past year.
Among the worst-hit were banks and industrials, which had previously seen steep re-ratings. Punjab & Sind Bank, UCO Bank, Ircon, IREDA, Central Bank of India, IOB, RVNL and KIOCL saw the sharpest declines — each falling 35-50 per cent. Yet, despite the correction, many of the worst-performing PSU stocks still show double-digit CAGR returns over three- and five-year periods, underscoring how steep the prior rally was.
M-CAP & valuations
The BSE PSU Index’s market capitalisation tells the story in phases. The basket hit a record high ₹74-lakh crore in July 2024, before sliding 31 per cent to ₹51-lakh crore by February 2025 in a broad-based correction. A partial rebound since then lifted the Index to ₹64-lakh crore by July, still nearly 14 per cent below last year’s peak.
As valuations cooled, the BSE PSU Index’s Price to Earnings (P/E) multiple dropped from 14x in July 2024 to 9.8x in February 2025, before recovering to 12.2x currently.
Despite the recent lull, there are reasons for optimism. A cyclical rebound in corporate earnings, supported by domestic demand and government capex, may help PSU stocks. An earnings recovery is anticipated in FY26 and FY27.
According to calculations based on Bloomberg estimates, the BSE PSU index’s EPS is likely to be ₹1,579.2 in CY25, which means its trading at CY25 PE of around 12.5 times. While this may look inexpensive, there are stocks such as RVNL, BEML, Bharat Dynamics, BHEL and NTPC Green, which trade at 60-190 times trailing PE, as per Capitaline data. Hence, value-conscious investor must carefully pick and choose names within the PSU universe. Heavier correction from peaks for some of the stocks indicates that valuations begin to matter at some point in time.
Industrial PSUs, especially those tied to infrastructure, capital goods and defence, are expected to benefit from stronger order books, better execution, and localisation policies. Key segments such as BFSI and oil & gas are also expected to post stable earnings.
Published on July 19, 2025