Best Government Stocks in India

Public Sector Undertakings (PSUs) are businesses that the government owns the majority of. Investors that are looking for development potential, stability, and steady dividend payments frequently invest in PSUs.

Join the Club of Lakhs of Tech-Savvy Investors!

Open Account Now

PSU stock investments might be a wise strategy for portfolio diversification because of their affordable prices and lower risk profile. These government-backed businesses function in vital industries and have prospects for long-term expansion. This article provides a comprehensive list of some of the top PSU stocks to look into in 2024, along with information on PSU stocks in India, including risks, rewards, how to invest, considerations to think about before investing, and why one should invest in government-owned businesses in India.

The government divides the PSUs on the basis of their size and the autonomy their managements have to operate. So, for instance, companies that are the biggest and have the most autonomy are part of the Maharatna list. This includes 13 companies such as Oil & Natural Gas Corp (ONGC), NTPC Ltd, Indian Oil Corp, and Coal India Ltd. Next on the scale are Navratna companies, which are 16 in total; followed by Miniratnas, which number more than 60.

What are Government Stocks?

Shares of companies owned or controlled by central or state governments are called government shares or government stocks. These companies are also known as PSUs and PSEs, which is short for public-sector enterprises. Many of these companies operate in the banking sector, and so are called public-sector banks (PSBs). 

To be sure, government stocks refer to companies in which the government owns at least a 51% stake. It doesn’t include companies in which the government owns a stake less than 50% or in which the government once may have held more than 51% stake but divested its holdings over time below that threshold.

Overall, India has more than 200 PSUs though not all such companies are publicly listed. While only a handful of PSUs that are owned by state governments are listed on stock exchanges, there is a long list of central government-owned PSUs that are traded on bourses, giving investors plenty of options to choose from.
 

Types of Government Companies in the Share Market

Broadly, government companies traded on the stock market can be divided into two main categories based on their ownership: those owned by the central government and those owned by state governments. In addition, a third category can be public-sector banks. 

CPSUs or CPSEs: These are companies in which the central government owns a stake of at least 51%. CPSEs can be in strategic sectors such as defence and aerospace, or non-strategic areas. 

PSBs: India has a dozen PSBs, most listed on stock exchanges. 

State-Level Public Enterprises: These are companies in which a state government holds a majority stake. There are not many such companies listed on bourses. Among those listed include Gujarat State Petronet Ltd and Orissa Minerals Development Company.

Performance Overview of Best Government Stocks

*As of Oct 01, 2024

List of Best Government Stocks in India

For the purpose of this article, we will focus only on non-banking companies since banks by themselves form a separate category. Here are some of the best government stocks to invest in India. To be sure, this is not a recommendation to investors and they should do their own research before putting their money in any stock.

1. ONGC Ltd

The Maharatna company is India’s flagship oil and gas explorer and accounts for nearly three-fourth of the country’s crude oil production. Through its subsidiaries HPCL and MRPL, the company is also a major player in the refining business while its unit ONGC Videsh Ltd operates oil and gas blocks in more than a dozen countries.

2. NTPC Ltd

This Maharatna company is India’s biggest power generation firm. NTPC accounts for almost 25% of India's total power generation. It has a capacity of 73,874 MW, comprising mainly coal and gas-based power plants. However, by 2032, it aims to ramp up its non-fossil-fuel-based generation capacity to nearly 50% of its portfolio.

3. Bharat Petroleum Corp Ltd

BPCL is one of two major Indian refining PSUs, apart from Indian Oil Corp. It operates three large refineries, in Mumbai, Kochi and Bina (Madhya Pradesh) and also operates more than 20,000 fuel stations across India. The company has been on the government’s radar for privatisation.

4. Bharat Electronics Ltd

The aerospace and defence electronics PSU primarily manufactures advanced electronic products for ground and aerospace applications. The company has 10 manufacturing facilities where it makes navigation systems, radars, electronic warfare systems, avionics and other weapons systems. It also offers cybersecurity services, software services and electronic manufacturing services to the private sector. 

5. Coal India Ltd

This Maharatna company is not only India’s but also the world’s single-largest coal miner. Coal India and its subsidiaries operate more than 300 mines across India, and produce nearly 700 million tonnes of coal annually. 

6. Power Grid Corp of India Ltd

Power Grid is India’s national electricity transmission utility. The Maharatna company operates millions of kilometers of transmission lines and hundreds of substations. It also has a telecom network and provides consultancy services to nearly two dozen countries worldwide.

7. Power Finance Corp

PFC and its subsidiary Rural Electrification Corp provide the financial backbone to India’s power sector. The two non-banking finance companies offer loans and consulting services to state and central power utilities, private-sector developers and state governments for generation, transmission, distribution and system improvement projects.

8. Hindustan Aeronautics Ltd

Bangalore-based HAL is India’s premier aerospace and defence production company. The defence PSU manufactures fighter and trainer aircraft as well as and helicopters for the Indian Air Force, civilian aircraft, engines and other equipment for space missions, and avionics systems.

9. Indian Railway Catering and Tourism Corporation

IRCTC provides ticketing and catering services for the state-owned Indian Railways. It was founded in 1999 and operates under the railway ministry. The company floated its IPO in October 2019. Since then, its market capitalisation has zoomed from Rs 5,120 crore to nearly Rs 80,000 crore.

10. Indian Railway Finance Corp

IRFC is another railway PSU. Its main task is to raise financial resources for the railways’ operations and expansion. The company launched its initial public offering in 2021. Since then, its shares have jumped nearly seven times.

Top PSU by Market Cap

The top PSU companies by market capitalization are led by Hindustan Aeronautics Ltd, ONGC, & NTPC, with market caps exceeding ₹3 lakh crore. Other notable companies include Coal India, Power Grid, & Bharat Electronics, each surpassing ₹2 lakh crore. Smaller yet significant firms in this list are IRCTC, NMDC, & Cochin Shipyard, highlighting the diverse range of large public sector enterprises.

*As of Oct 01, 2024

Top PSU 1 Year returns

Top PSU stocks by 1-year return show exceptional performance, with Oil India leading at 232.11%. GMDC & NMDC follow with returns of 132.08% & 108.31%, respectively. Other notable performers include GAIL (India) at 105.56% & National Aluminium at 94.86%, reflecting impressive gains over past year.    

  *As of Oct 01, 2024

Best Small Cap PSU

Top PSU stocks by lowest last price include UCO Bank at ₹52.80 & NMDC Steel at ₹54.17. Central Bank follows at ₹59.90, with IOB & Punjab & Sind Bank priced at ₹62.41 & ₹62.50, respectively. Bank of Maharashtra rounds out list at ₹62.89.

*As of Oct 01, 2024

Best PSU by PE Ration

PSU stocks with lowest P/E ratios are led by Canara Bank at 6.4, followed by Union Bank at 6.87. IOC stands at 8.42, with Bank of Maharashtra at 9.97. General Insurance & Power Finance are priced at 10.45 & 11.59, respectively. SBI & Coal India have P/E ratios of 11.84 & 20.77, while NTPC & IRCTC are at 21.48 & 67.25.

*As of Oct 01, 2024

Best PSU Thematic Funds in India

For investors who want exposure to the best government stocks but don’t want to invest in shares directly, there is another option; they can invest in such stocks via mutual funds. 

While several large-cap, flexi-cap and other diversified mutual funds invest in PSU stocks along with other companies, a few fund houses have schemes that invest specifically in government stocks. 

There are, in fact, four thematic mutual fund schemes that invest in PSU stocks. These are: Invesco India PSU Equity Fund, SBI PSU Fund, Aditya Birla Sun Life PSU Equity Fund, and ICICI Prudential PSU Equity Fund. Here is a quick snapshot of these funds:

How to Invest in Government Stocks?

The process of investing in government stocks is no different than how one invests in any other stocks. Investors must have a demat account to invest directly in stock markets. 

Then, they must have an account with any brokerage, such as 5paisa.com. Investors must decide their asset allocation, risk appetite, investment horizon and the amount they want to invest. Thereafter, they must evaluate the preferred sectors and certain stocks within those sectors. After carefully selecting the stocks they want to invest in and the amount they want to put, investors can start their investment journey.

Also read: Best Artificial Intelligence Stocks (AI Stocks) in India 2024

Conclusion

Investing in stocks and mutual funds is imperative to beat inflation and create long-term wealth. Investing in government stocks can also offer another advantage: Most top PSUs regularly announce dividends. So, if you are looking for regular income from stocks, investing in PSUs can be a good option. Having said that, one must do proper due diligence before investing in stocks, whether of government companies or private companies.