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SBI to HAL: These PSUs merit long-term portfolio spot, says Motilal Oswal
SBI, BEL, HAL, Power Grid, and Coal India are among the top stock picks for Motilal Oswal
Sai Aravindh Mumbai
India's public sector undertakings (PSUs) deserve a place in long-term investor portfolios, as strong demand tailwinds persist while valuations have cooled off from their peak, according to Motilal Oswal Financial Services.
Indian PSUs have been one of the most remarkable stories of Indian capital markets after Covid-19, the domestic brokerage said in a note on Thursday, adding that several PSU sectors posted a sharp turnaround in profit and created unexpected shareholder value.
Listed companies delivered a strong earnings compound annual growth rate (CAGR) of around 30 per cent between financial year 2020 (FY20) and FY25, with PSUs growing even faster at 36 per cent, analysts at Motilal Oswal said.
However, PSU earnings growth slowed in FY25 due to a high base from a sharp 43 per cent jump in FY24 and weaker performance in the oil and gas sector. This was also due to lower government capex, weak consumption trends, and volatility caused by geopolitical tensions, the note said.
Growth optimism
Although some cyclical moderation was seen in FY25, the key building blocks and supportive environment for sustained profitable growth in several PSUs remain intact, Motilal Oswal noted.
Analysts expect a rebound amid increased government spending and continued focus on infrastructure and capex, stronger order books, and a favourable monsoon season. Further, the government's focus on localisation and the 'Make-in-India' initiative in the defence sector will continue to drive growth for industrial PSUs, it said. "We expect PSU contributions to earnings and market capitalisation to remain stable or improve going forward.
Motilal Oswal estimates a 10 per cent profit after tax (PAT) compound annual growth rate (CAGR) for its PSU coverage universe. This growth will be largely driven by the banking, financial services and insurance (BFSI) and oil and gas (O&G) sectors, based on conservative assumptions from the FY25 base, it said. Sectors such as logistics, capital goods and metals are also expected to support earnings.
Valuations cool
The market capitalisation of the BSE PSU Index touched a record high of ₹74 trillion in July 2024. It then fell 31 per cent in February 2025 amid a broader market correction, before rebounding 25 per cent in June 2025.
The index currently stands 14 per cent below its peak but is up 5 per cent in calendar year 2025 so far. Due to the correction between October 2024 and March 2025, the index's price-to-earnings (P/E) ratio declined to 11.7 times in June 2025 from 13.8 times in July 2024, Motilal Oswal noted. However, it has recovered from the February 2025 low of 9.8 times.
So far this year, the BSE PSU index has advanced 2.4 per cent, underperforming the benchmark Sensex, which has risen by 6.4 per cent.
Top stock picks
State Bank of India (SBI), Bharat Electronics (BEL), Hindustan Aeronautics (HAL), Power Grid Corp., and Coal India are among the top stock picks for the domestic brokerage.
Motilal Oswal expects BEL to deliver an 18.6 per cent CAGR in earnings per share (EPS) over FY25–27, while HAL is projected to grow at 13.6 per cent. SBI and Power Grid Corp are both expected to post EPS growth of 9.3 per cent, and Coal India is estimated to grow at 9.8 per cent.
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