Budget 2025 Test for Sarkar Raj: PSU Stocks Soar ₹39 Lakh Crore, LIC, Indian Overseas Bank & UCO Bank in Spotlight

Public Sector Undertaking (PSU) stocks have surged by ₹39 lakh crore, giving returns up to 771% in a year. However, these stocks now face a challenge with the upcoming budget. Increased capital expenditure (capex) could benefit many government-owned companies, but Finance Minister Nirmala Sitharaman might also decide to sell some stakes in PSUs with low public float, which could drive prices down.

Planning to Sell Stakes

Deepak Jasani, Head of Retail Research at HDFC Securities, suggests that the government might announce plans to sell stakes in these stocks due to their high valuations, although the overall divestment target might not increase significantly. This potential sale, known as an offer for sale (OFS), could flood the market with more shares, potentially lowering their prices.

Market experts believe the budget might include announcements about selling stakes in low free-float companies to take advantage of the bullish market. Kotak Institutional Equities notes that the government should consider aggressive stake sales in the current market, even if outright privatization isn’t politically feasible.

Government Owned PSUs

Some PSUs where the government owns at least 90% include KIOCL with 99.03% ownership, Punjab & Sind Bank (98.25%), LIC (96.5%), Indian Overseas Bank (96.38%), and UCO Bank (95.39%). These stocks have rallied due to their low free-float status, where not many shares are available for public trading.

SEBI rules require a minimum of 25% public shareholding, but many companies get exemptions. For example, LIC has until May 2027 to achieve 10% public float and until May 2032 to reach 25%. Five PSU banks still have public shareholding below 25%, with a deadline approaching next month.

Axis Securities

Axis Securities expects the government to clarify its plans for privatizing some PSU banks. While retail investors are benefiting from the PSU stock boom, more experienced investors are either taking profits or warning about high valuations.

Sanjeev Prasad from Kotak Equities finds the valuations of many PSU stocks unreasonable compared to their fundamentals. Some of these companies trade at high price-to-earnings (P/E) ratios, price-to-book (P/B) ratios, or enterprise value to assets (EV/assets) ratios, despite not showing significant improvement in their financials, and some are even making losses.