We explore how BSE PSU index became one of the leading indices of 2022
29-Dec-2022 •Samridh Rela
No one was expecting an underdog story out of PSUs. The sluggish pace of the segment has always made investors think twice, and the BSE PSU index has been the worst-performing index of the decade. So, when the same index became the third-best-performing index of 2022, Dalal Street was left surprised.
The BSE PSU index has outshined nearly every other index this year (behind only the BSE SME IPO index and BSE Power index), posting a whopping 26.7 per cent return and beating Sensex by a wide margin of 16 per cent (as of December 27, 2022). Out of the 55 companies in the index, 16 have given more than 50 per cent returns, and seven have more than doubled.
The table below shows the top five winners and losers in the BSE PSU index.
So, what broke the decade-long underperformance curse?
Banks cleaning up their act
As of December 27, 2022, 12 public sector banks accounted for 33.3 per cent of the total market capitalisation of the BSE PSU index.
And of all the things PSU that irk investors, rising non performing assets (NPAs) of public sector banks has always topped the list. However, 2022 felt like a year of redemption for public sector banks as they closed accounts and shed much of their NPA weight.
In addition, their books are looking healthier. Public sector banks have recorded impressive earnings, robust credit growth and better asset quality in the first half of this FY23.
Government's focus on the defence industry
The capital goods sector has been one of the major contributors to the stellar performance of the BSE PSU index.
The government's restrictions on the import of nearly 209 defence accessories and the Production Linked Incentive (PLI) scheme proposed by the government have lowered competition and reinvigorated defence PSUs. Further, the government's push for an "Atmanirbhar Bharat" has boosted the order books of defence PSUs and others in the capital goods sector.
While it is too early to say if this is truly an underdog story in the making, 2022 has been the year of PSUs.
Suggested read: Mutual funds and government banks: Public display of aversion