PSU funds are sliding. Is it just another cycle?

Summary: PSU funds have gone from market darlings to laggards in just a year. So, what really drives their boom-and-bust cycles and can investors make the most of them without getting burned? This analysis takes you past the headlines to what matters. Public Sector Undertakings (PSUs)—government-owned companies across various sectors, including banking, energy, infrastructure and defence—have garnered considerable attention over the past few years. Once dismissed as sluggish, these enterprises have been revitalised by government-led capital spending, resilient domestic demand and renewed global relevance in areas such as defence and energy. Mutual funds focused on PSUs have mirrored this resurgence. Between 2022 and 2024, regular plans of PSU funds delivered staggering returns: 26.5 per cent in 2022, 59.2 per cent in 2023 and 22.9 per cent in 2024. Because of this “New India through old institutions” narrative, PSU-themed funds have accumulated about Rs 51,500 crore in assets under management (as of June 2025). But as quickly as optimism soared, sentiment flipped. By July 2025, PSU funds had become the worst-performing equity category, returning -12.4 per cent over the last 12 months. This boom-and-bust cycle raises an essential question: is this just another PSU false dawn or a pause before the next surge? The PSU fund universe at a glance India has over 300 PSUs, with about 100 listed companies spanning across market caps. Indices such as the S&P BSE PSU Index