Top Government Stocks in India 2024

Government Stocks in India

Building long-term wealth requires a strategic approach to investing. Government stocks, also known as Public Sector Undertakings (PSUs) or Public Sector Enterprises (PSEs), can be a compelling option for this purpose. These companies, often associated with stability and reliability, play a significant role in the Indian economy.

This comprehensive guide delves into the intricacies of government stocks, encompassing their types, advantages, and the various avenues for investing in them.

Understanding Government Stocks: A Deeper Look

What are PSUs/PSEs?

Government stocks in India represent ownership in companies where the Indian government, either central or state, holds a controlling stake. This minimum ownership threshold is typically 51%. These companies contribute significantly to national wealth creation and fuel the nation’s overall economic growth by operating in various crucial sectors like finance, coal, infrastructure, oil, power, and banking.

Top PSU Stocks in India in 2024 (as per Market Capitalization)

Here, we have listed down some of the top PSU sector stocks as per market capitalization.

• Navratna PSUs: These PSUs exhibit strong financial performance and contribute significantly to the economy. They are granted greater operational freedom compared to standard PSUs.

These include names like Bharat Electronics Limited (BEL), Engineers India Limited (EIL), Hindustan Aeronautics Limited, National Mineral Development Corporation (NMDC), and a few more.

S.NO	Top PSU Companies in India	Market Capitalization
1.	Bharat Heavy Electronics Limited (BHEL)	1,64,031.4Cr
2.	Engineers India Limited (EIL)	12,457.67Cr
3.	Hindustan Aeronautics Limited	2,39,702Cr
4.	National Mineral Development Corporation (NMDC)	63,843.2Cr

• Miniratna PSUs: These PSUs demonstrate consistent profitability and are categorized into two types: Miniratna and Miniratna Category II. They are granted a certain level of operational and financial flexibility.

These include names like g, SJVN Limited, Cochin Shipyard Limited, RITES Limited, and a few more.

S.NO	Top PSU Companies in India	Market Capitalization
1.	SJVN Limited	53,189.78Cr
2.	Cochin Shipyard Limited	28,430Cr
3.	RITES Limited	16,825.9Cr

Investing in Best Government Stocks: The change in approach of PSU banks makes for a turnaround story

PSU Banks, which were among the laggards on the stock market for many years, outperformed over the last two years with the Nifty PSU Bank rising 91% in FY24. PSU Banks is a turnaround story from record losses to record profit. This feat of the public sector banking industry can be attributed to the initiatives and spate of reforms undertaken by the government led by Prime Minister Narendra Modi, along with Finance Minister Nirmala Sitharaman, Financial Services Secretary Rajiv Kumar, and his successors. The Government was very clear that the PSU banks needed to clean up their act and reduce their NPAs which had grown to all-time highs in FY18.

One of the factors that aided the turnaround was that there was no indiscriminate lending during the pandemic years and this period was also used to write off previous losses and lending norms were made more stringent. The net effect was that the clean-up of the balance sheet started reflecting from the third quarter of FY22 and the banks started showing improvement in key financial metrics throughout FY23 and FY24. Technological advancements, bank mergers, and the unwavering confidence of bankers have also played crucial roles in this turnaround story.

Types of Government Companies: A Categorical Breakdown

The Indian PSU landscape comprises two primary categories:

• Central Public Sector Enterprises (CPSEs): These companies are directly owned and operated by the central government or other CPSEs. They act as the backbone for sectors like energy, telecommunications, defense, and transportation. Some prominent examples include:
  • Oil and Natural Gas Corporation (ONGC): A dominant player in oil and gas exploration.
  • Bharat Heavy Electricals Limited (BHEL): A leading manufacturer of power generation equipment.
  • Coal India Limited: The world’s largest coal producer.

• PSU Banks: Government banks, popularly known as Public sector banks are commercial banks that are governed by the Indian Government and the majority of their shares are held by the central as well as state governments. Previously, there were 27 public sector banks in India but after August 2019, some of the banks were merged into larger ones. After merging, the total number of public sector banks stood at 12. 

Presently, there are 12 government banks in the country namely, the State Bank of India, Bank of Baroda, Central Bank of India, Canara Bank, Punjab National Bank, Bank of Maharashtra, Union Bank of India, UCO Bank, Indian Bank, Punjab and Sind Bank, and Bank of India. 

• State Bank of India: The State Bank of India is considered the largest public sector bank of India. SBI ranks 221st in the list of 500 biggest organizations across the world and it is ranked 43rd in the list of the largest banks in the world.
• Bank of Baroda: Bank of Baroda is the third largest nationalized bank in India. Dena Bank and Vijaya Bank were merged into the Bank of Baroda.
• Punjab National Bank: Punjab National Bank is the second largest and nationalized bank in the country. United Bank of India and Oriental Bank of Commerce were merged into Punjab National Bank. 

Beyond Classification: A Look at Subcategories

Further classification of PSUs exists based on their performance and strategic importance:

• Maharatna PSUs: These are the crown jewels of the PSU sector, demonstrating exceptional financial performance, global presence, and strategic significance. They enjoy greater operational and financial autonomy. To gain Maharatna status, the company should be eligible for the criteria given by the Indian Government. Some criteria are high net worth, high-performance record, and significant annual turnover. Maharatna Company should have already gained the status of Navaratna Company.  Maharatna companies have more freedom in making financial decisions without consulting the government.

These include names like BHEL (Bharat Heavy Electricals Limited), Coal India Limited, HPCL, Indian Oil Corporation, NTPC, SAIL and a few more.

Benefits of Investing in Government Stocks in India:

Government stocks in India offer a compelling value proposition for investors seeking a well-rounded portfolio:

• Stability: Government backing makes these stocks less susceptible to market fluctuations compared to private companies, offering a degree of stability and lower risk.
  
• Regular Income: Many government bonds provide fixed interest payments at regular intervals, generating a predictable income stream for investors.
  
• Diversification: Including government stocks in your portfolio helps diversify risk. This mitigates potential losses by balancing the performance of your holdings across different asset classes.
  
• Social Impact: By investing in PSUs, you contribute to the nation’s development. PSUs often play a vital role in infrastructure development, social welfare programs, and nation-building initiatives.
  
• Tax Benefits: In some cases, government bonds may offer tax benefits, making them even more attractive for certain investors. However, it’s crucial to consult a financial advisor to understand the specific tax implications.
  

Best Government Stocks in India: Power, defense, railways, and infrastructure push by the Government revive the fortunes of PSE companies.

The Nifty PSE index surges 81% in a year with 4 stocks including REC, and PFC surging over 100% at the close of FY24. Public Sector Undertakings (PSUs) have experienced robust gains propelled by substantial order inflows, reflecting the government’s emphasis on initiatives such as Atmanirbhar Bharat and Make in India.

Power stocks have demonstrated remarkable returns over the past year, with REC showing a 286% increase and PFC delivering 219% growth. As government-owned entities categorized as central public sector undertakings under the Ministry of Power, they play crucial roles in funding projects throughout the power sector, covering activities from generation to distribution. 

The government’s focus on infrastructure development and modernization of railways along with self-reliance in defense and crucial metals all make a case for investing in these stocks as these are likely to further gain as the new government could push this agenda further.

Evaluating Government Stocks: A Step-by-Step Approach

Selecting the right government stocks in India requires a thorough evaluation process:

• Company Analysis: Research the PSU’s financial performance, future growth prospects, and its position within the industry. Look for companies with a strong track record, sound management, and sustainable business models.
  
• Sectoral Analysis: Evaluate the overall health and growth potential of the sector the PSU operates. Consider factors like government policies, technological advancements, and industry trends.
  
• Financial Analysis: Scrutinize the PSU’s financial statements, including balance sheets, income statements, and cash flow statements. Look for key metrics like profitability, debt levels, and dividend payout history.
  
• Comparative Analysis: Compare different government stocks in India within the same sector or across sectors. This helps identify opportunities that offer the most value based on your investment criteria.
  

Beyond Stocks: Exploring Other Government Investment Options

While government stocks in India are a popular choice, other investment avenues offer exposure to the government sector:

• Sovereign Gold Bonds: These government-backed bonds offer a safe and secure way to invest in gold. They are denominated in grams of gold and offer interest payments.
  
• Public Provident Fund (PPF): This is a long-term investment scheme backed by the government. It offers attractive interest rates, tax benefits, and partial withdrawal flexibility.
  
• National Pension System (NPS): This government-sponsored pension scheme encourages long-term savings for retirement planning. It offers tax benefits and professional fund management.
  

A Word of Caution: Consulting a Financial Advisor

The financial markets can be complex, and even government stocks carry some degree of risk. Consulting a qualified financial advisor can be highly beneficial. They can assess your financial situation, risk tolerance, and investment goals, and recommend suitable government investment options to align with your needs.

Conclusion

Government stocks in India can be a valuable addition to a well-diversified portfolio. They offer stability, regular income, and social impact potential. By understanding the different types of government companies, available investment avenues, and key considerations, you can make informed investment decisions that contribute to your long-term financial well-being. Remember, conducting thorough research, consulting a financial advisor, and making informed decisions are paramount for success in the investment landscape.

Disclaimer: This is for general information and education purposes only. The Securities quoted (if any) are for illustration only and are not recommendatory. Past performance does not guarantee any future returns. Investments in the securities market are subject to market risks. Read all the related documents carefully before investing. For more details/disclosures, visit www.univest.in/univest mobile application.