It is perhaps for these reasons that the BSE PSU Index has fared badly recently. In the last year, the BSE PSU Index was only up by 12%, which is poor when compared to the 26.7% increase in Sensex stocks. Analysts have pinpointed the lack of PSU success to wariness regarding government policy when it comes to investment in industries like diesel, oil and gas. For example, the Indian government continues to regulate the price of diesel across the country and there are is little clarity regarding the under-recovery or government losses in this area. It is estimated that state-owned diesel companies lost Rs 9-10 per litre last year even though the government raised prices by Rs 5 per litre. Moreover, there has been a lack of policy making in the area of gas and oil, meaning companies remain stagnant in a high interest rate environment. For these reasons, amongst others, many investors have been wary about PSU stocks.
However, PSU stocks are predicted to make a significant recovery and experts are suggesting that all is not lost for those thinking about investing into government-owned businesses. Shares in PSU banks are expected to grow as a turnaround in interest rate cycles are likely to increase business. This change in the interest rate cycle is due to a slowing GDP growth and the moderating of inflation, meaning RBI are expected to cut interest rates on a 100 point basis in the coming year. In addition to PSU banks, analysts have predicted growth in the engineering sector, which is an area of government-owned business that is unlikely to be affected by policymaking. The Indian Oil Corporation (IOC) is looking to invest Rs 50,000 into the engineering sector, which will mean an increase in business for Engineers India, driving an increase in shares.
Ultimately, whilst BSE PSU stocks have been suffering in recent years, industry experts are speculating an improvement in public sector shares in coming months. As the success of PSU stocks are often dependent on government policymaking, they can create the volatile environment that is ideal for those interested in spread betting. Moreover, it is wise to research which PSU industry is worth investing in before making a decision as there are often significant differences in stock success across the spectrum.
Author - Adam has written articles for many years now in different industry sectors with great success across the board.