Key Things You Should Consider While Investing In PSU Stocks

Stock market investment is considered risky especially for beginners who are new in the market. Beginners in the Indian equity market are often confused as to whether they can invest in shares of private companies or state-owned companies. Traditional investors usually think that it is wise to invest in PSU stocks as they have the backing of the government and assure stability and growth.

However, if past precedents are to be seen, we realize that even private listed companies with strong fundamentals and business models have also offered impressive returns to investors. Thus, it is not always good to generalize that private stocks are not worth considering when it comes to adding stocks to your investment portfolio.

However, if you are new to the market it is always recommended to start with small investments and pick stocks of companies with government backing. Notably, there are a few important things that you should consider even when picking the PSU stocks. Before we move on to the factors to be considered while picking these stocks, let us first understand what are PSU firms.

Public Sector Undertakings PSU stocks refer to government-owned companies or corporations that are listed on stock exchanges and operate in various sectors of the economy. These firms are established by the government to undertake commercial activities to provide essential goods and services to the public.

PSU companies are controlled by the government and can be involved in industries such as energy, telecommunications, finance, manufacturing, insurance, and more. PSU stocks usually offer attractive dividend yields, and thus provide investors an additional source of income.

Additionally, PSU stocks are also seen as a hedge against market volatility, in view of their relatively conservative nature. However, it is always advisable to conduct detailed research, considering both the advantages and risks associated with investing in PSU stocks. Factors including government policies, global and domestic market conditions, and sector-specific dynamics should be evaluated carefully to make informed decisions in the realm of PSU stocks.

Stability

PSU stocks are mostly considered stable as they are backed by the government. Government ownership gives investors a sense of security which makes them a potential investment avenue.

Dividend Earnings

PSU stocks are attractive when it comes to the dividend distribution by these companies. Many PSUs also follow the practise of sharing some part of their profits with investors, thus providing a regular stream of income and improving the overall returns on investment.

PSU companies generally have a consistent history of dividend payments to their shareholders. Thus, always look at the dividend history of these companies while adding them to your investment portfolio.

Long-Term and Sustainable Growth Potential

While PSU stocks do not offer whooping short-term gains, they usually provide sustainable long-term growth. Thus, they can be a top choice among long-term investors. They believe in sharing their profit with shareholders.

However, there are also bureaucratic hurdles such as sudden policy changes by the government, and government interference which should be kept in mind while picking PSU stocks.

Meanwhile, Government stake sales in a PSU company can also impact a stock's long term prospects and the returns offered by it to shareholders.

Some of the multi-bagger PSU stocks which have delivered over 100% returns to investors in last one year include Oil and Natural Gas Corporation Ltd (ONGC), Rail Vikas Nigam Ltd, Power Finance Corporation Ltd, Mazagon Dock Shipbuilders Ltd, Cochin Shipyard, etc.