PSU or Public Sector Undertaking is a company whose majority shares are owned by the government. The main objective of these companies is to boost the growth and development of a nation’s economy. They produce essential items that people consume in their daily lives. PSUs operate in key sectors such as energy, banking, insurance, infrastructure, and more, producing essential goods and services that are part of everyday life.
In this blog, we are going to learn what is PSU stock and understand its benefits, working process and how you can invest in PSU stocks.
What is PSU Stocks?
PSU stocks are shares of those companies whose 50% or more shares are held by the Government of India. This significant government stake often makes these stocks relatively safer investment options, as they may benefit from government backing and typically offer higher dividend payouts.
The financial performance of PSU companies depends on their industrial sectors, political changes and economical factors. Some companies have been consistently profitable, while some have faced losses due to various reasons. Even when investing in PSU stocks, you should analyse PSU’s financials and scrutinise all factors that affect your investment decisions before investing.
Are PSU stocks safe?
- Government Backing: PSU stocks are considered relatively safe due to the majority government ownership, which provides stability and reduces the risk of bankruptcy, especially during economic downturns.
- Stable Dividends: These companies often offer consistent and attractive dividend payouts, making them appealing for investors seeking regular income.
- Strategic Importance: PSUs operate in key sectors like banking, energy, and infrastructure, ensuring long-term business relevance and policy support.
- Lower Valuations: PSU stocks often trade at lower valuations compared to private sector peers, providing value opportunities for conservative investors.
- Market Risks Remain: Despite their safety, PSU stocks are not risk-free. They can be affected by government interference, slow decision-making, policy changes, and competition from private players.
- Diversification Recommended: As with any equity investment, it’s wise to diversify and research individual PSU companies before investing.
Overall, PSU stocks offer a blend of safety and steady returns but still carry typical market risks.
Types of PSU Stocks
PSU stocks are categorised into three types. Here is a list of them.
- Miniratna: Small Public Sector Undertakings that have limited independence are considered as miniratna PSUs.
- Navaratna: These are medium-sized companies that have partial autonomy more than Miniratna PSUs.
- Maharatna: These are Large and influential PSUs with a strong track record and a significant market presence.
Benefits of Investing in PSU Stocks
An investor seeking low risks and stable returns on their investments will find PSU stocks an interesting investment option. Here are some benefits of investing in PSU stocks:
- Dividend Income: Many public sector undertakings provide dividends on a regular basis, making it a good source of income for investors.
- Backed by the Government: Since PSU companies are majority-owned by the Government of India, they often receive policy support, bailouts, and funding. This makes them more stable in times of economic instability.
- Long-term Growth: PSUs work in essential sectors such as infrastructure, energy, etc. These sectors are essential for India’s economic development, ensuring that well-performing PSUs have room for sustainable long-term growth.
- Low Risk: PSU stocks are backed by the government, which makes it safer at times of economic instability when other private companies might face serious repercussions.
- Stable Income: Thanks to government support and strategic importance, PSUs often have stable revenues and operations, making them attractive to conservative investors.
How Does a PSU Stock Work?
Now that you know what is PSU stock and its features, it is essential to understand how it functions in the stock market. Indian Stock Exchanges like BSE and NSE have PSU stocks listed on them. You can buy these shares through the Torus Digital trading platform from any stock exchange you want.
If you wish, you can also invest in these stocks via mutual funds. You just have to choose a mutual fund that invests in PSUs.
How can You Invest in PSU Stocks?
You can invest in PSUs in the same way as you invest in any other publicly listed company. Here is a step-by-step process to invest in PSUs.
- Open a Demat Account with Torus Digital
- Transfer funds into your trading account to make direct investments.
- Deeply scrutinise the PSUs you want to invest in. Check for past performance, market trends and the government’s focus on that company.
- Remember, not all PSU stocks have a stable income, so choose cautiously.
- Choose the number of stocks you want to buy and place your order.
Final Thoughts
A good PSU investment will show operational autonomy, regular dividends, well-established management and strong financial health. PSU stocks are a good investment option for people who believe in venturing into low-risk investments and stable growth.
With Torus Digital, you get access to a 3-in-1 trading account, savings, and Demat account, all in one place. Explore and invest effortlessly through the user-friendly interface, and choose PSU stocks to build your portfolio with confidence.
