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Motilal Oswal Report
Most of the Indian public sector undertakings are present in deep cyclical industries (metals, oil and gas, and financials) and thus have inherently volatile and cyclical profitability/ market-cap performance.
A large part of the FY12-22 decade was spent in cleaning up the balance sheets of financials, which took its toll on the overall PSU profits as PSU banks formed one-third of the profit pool of Indian PSUs.
This coupled with several other macro disruptions kept the PSU profit pool suppressed over FY12-20.
The PSU story is essentially of two halves:
during the first half (FY12-17), profitability and market-cap performances were extremely tepid with overall PSU profits declining at 5% compound annual growth rate and BSE PSU index generating returns at 3.3% CAGR; and
over the second half (FY17-22), PSU profits expanded at 22% CAGR while BSE PSU index remained flat. Subsequently, PSU Index rose 17% post April 2022. In fact, PSU profits declined at 4% CAGR even over FY12-20 and BSE PSU Index was 8% lower as of FY21 than in FY12.
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