As soon as the toast of fairness markets, public sector shares have seen their momentum stall in 2025. The 63-stock BSE PSU Index has declined practically 12 per cent over the previous 12 months, 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 mixed market capitalisation of PSUs dropping to just about ₹64-lakh crore. Moderation in earnings progress and weak point in segments uncovered to world commodities and vitality costs have hit the momentum. Solely choose pockets, corresponding to defence, have bucked the pattern.
To be clear, PSU shares — although favourites of dividend-seeking traders — remained caught in a variety for a number of years. The PSU Index hovered between 5,000 and 10,000 ranges from FY10 to FY19. Throughout the Covid crash, it sank to the 4,000 degree earlier than a shocking post-pandemic rally noticed PSU shares ship 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 an enormous 92 per cent acquire for the index.
Earnings progress
The PSU worth rally was backed by earnings progress. Between FY20 and FY25, PSUs posted a 36 per cent CAGR in web revenue, elevating their collective share in India Inc’s complete earnings to 38 per cent, an all-time excessive.
From being under-owned and under-valued, many PSU names noticed a re-rating pushed by robust earnings, governance enhancements, and reform-led tailwinds.
That momentum, nonetheless, seems to have paused. Based on Capitaline knowledge, consolidated revenue for the BSE PSU Index declined 2.3 per cent in FY25, pulled down by a excessive base (FY24 PAT had jumped 49 per cent year-on-year) and weaker profitability of the oil and gasoline sector. PSU majors corresponding to MRPL, CPCL, IOCL, ITI, HPCL, MMTC, BPCL, and ONGC posted sharp year-on-year revenue drops of 30-90 per cent. Oil PSUs seem to have borne the brunt of crude worth volatility and refining margin compression.
The current slowdown in revenue progress, together with the sharp run-up in PSU inventory costs, prompted traders to e-book earnings. As many as 8 out of each 10 BSE PSU index shares delivered damaging returns over the previous 12 months.
Among the many worst-hit have been banks and industrials, which had beforehand seen steep re-ratings. Punjab & Sind Financial institution, UCO Financial institution, Ircon, IREDA, Central Financial institution of India, IOB, RVNL and KIOCL noticed the sharpest declines — every falling 35-50 per cent. But, regardless of the correction, most of the worst-performing PSU shares nonetheless present double-digit CAGR returns over three- and five-year intervals, 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 file excessive ₹74-lakh crore in July 2024, earlier than 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, nonetheless practically 14 per cent beneath final 12 months’s peak.
As valuations cooled, the BSE PSU Index’s Value to Earnings (P/E) a number of dropped from 14x in July 2024 to 9.8x in February 2025, earlier than recovering to 12.2x at the moment.
Regardless of the current lull, there are causes for optimism. A cyclical rebound in company earnings, supported by home demand and authorities capex, might assist PSU shares. An earnings restoration is anticipated in FY26 and FY27.
Based on calculations based mostly on Bloomberg estimates, the BSE PSU index’s EPS is prone to be ₹1,579.2 in CY25, which implies its buying and selling at CY25 PE of round 12.5 instances. Whereas this will look cheap, there are shares corresponding to RVNL, BEML, Bharat Dynamics, BHEL and NTPC Inexperienced, which commerce at 60-190 instances trailing PE, as per Capitaline knowledge. Therefore, value-conscious investor should fastidiously decide and select names inside the PSU universe. Heavier correction from peaks for a few of the shares signifies that valuations start to matter sooner or later in time.
Industrial PSUs, particularly these tied to infrastructure, capital items and defence, are anticipated to profit from stronger order books, higher execution, and localisation insurance policies. Key segments corresponding to BFSI and oil & gasoline are additionally anticipated to put up steady earnings.
Printed on July 19, 2025
