Government Companies: Shares of government companies also give better returns

NI Research Chairman Kishor Ostwal says that one should invest in good companies. Even if it is not official. We have seen many times in the past, when the shares of government companies have given better returns. Therefore, along with private companies, government companies should also be trusted.

Going through the data, we will find that there is often a hope of improvement in public sector undertakings before the elections. With this expectation they perform well. Considering the pre-poll period, PSUs can perform well in the next 2 years.

  • Investing in PSU shares offers many benefits. The cost of borrowing is lower due to better credit rating. Beneficial in the current scenario of rising interest rates.
  • PSU shares carry less risk than a promoter-run company. They also pay good dividends.

ICICI Prudential Mutual Fund has launched one such PSU Equity Fund. It is an open-ended equity scheme. Its objective is to strengthen capital in the long run by investing primarily in equity and equity related instruments of public sector companies. Such schemes can invest in sectors and stocks that are part of the S&P BSE PSU Index. It can invest in all three market cap i.e. large, mid, or small-cap opportunities.

These are the factors that make it even more attractive

the better margin of safety

The government holds the majority share in PSUs as compared to non-promoters (foreign portfolio investors, domestic institutional investors, retail). Since these non-government companies are owned by non-promoters, PSUs offer a better margin of safety.

Valuations in PSU companies have been attractive for some time, indicating that these companies have a better margin of safety.

high dividend yield

Public Sector Undertakings offer better dividend yields than larger markets. The average dividend yield of the S&P BSE PSU Index (last 17 years) is 2.6, while that of the S&P BSE Sensex is 1.3.

Companies that provide high dividend yields are in high demand in volatile environments. This results in an increase in capital.

PSU’s Monopoly Sectors

Government Banks:
Public sector banks are in the midst of a cyclical turnaround, with return on equity just beginning and lower credit costs due to better asset quality.

Defense : The government has allocated Rs 764 billion for the armed forces to enhance defense capabilities and reduce foreign spending on equipment. It is expected that the defense sector will perform well.

Electricity : Power generation is mainly dominated by PSU companies. This is a good time for investors looking for opportunities to participate in the potential growth journey of PSUs.

You can invest in every field

PSU companies form a significant part of the stock market. They are present in various sectors offering wide range of investment opportunities. Companies offering high dividend yields are more in demand in volatile environments. -Chintan Hariya, Head of Strategy, ICICI Prudential Mutual Fund

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