Is the PSU party just beginning? Where to look for next leg of growth
FY25 marked a phase of earnings consolidation, with PSU profits declining 2% YoY due to a high base effect and weak oil & gas (O&G) sector performance. Excluding O&G, PSU earnings grew 16% YoY. PSU banks remained the dominant driver, with a 26% YoY profit increase driven by lower credit costs and improved asset quality. Notably, PSUs' share in India Inc.'s total profit pool rose to 37.5% in FY25—up from 20% in FY20—highlighting their expanding relevance in India's corporate earnings landscape.
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Valuation multiples have moderated post the FY24 peak, with the BSE PSU Index trading at 11.7x forward P/E in June 2025—down from 13.8x in July 2024 but above the historical average of 9.9x. The sector's ROE remains strong at 16%, and the contribution of loss-making PSUs to total profits has dropped to just 1%, down from 45% in FY18—signaling improved operational discipline.
Going forward, PSU earnings are expected to grow at a 10% CAGR over FY25–27, led by BFSI (53% of incremental profit), O&G (20%), and metals (12%). Renewed government capex, Make-in-India momentum, and strong order flows in defence and infrastructure remain key tailwinds.
BEL: Target Rs 410
Bharat Electronics
(BEL) is poised for strong growth, backed by a robust INR 270 billion order pipeline and strong tailwinds from defence indigenization. The company expects 15% revenue growth in FY26, led by the execution of large orders such as QRSAM and next-gen corvettes, ensuring healthy revenue visibility through FY27.
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Consistent R&D investments, enhanced localization, and a strong, debt-free balance sheet with INR 94 billion in cash enable margin resilience and room for capacity expansion. We expect revenue/PAT/EPS CAGR of 17%/16%/19% over FY25–27.
BEL was also among the top five gainers in PSU market cap rankings in FY25, reflecting investor conviction in the capital goods-led PSU growth theme.
HAL: Target Rs 5,650
HAL posted a resilient FY25 with 10% YoY PAT growth, supported by improved margins and normalization of provisions. Despite conservative 8–10% revenue growth guidance, HAL's robust INR 1.8 trillion order book and resolution of engine supply issues for Tejas Mk1A aircraft support execution momentum. The company aims to deliver 12 LCA aircraft in FY26.
We model a revenue/PAT CAGR of 21%/14% over FY25–27, supported by stable EBITDA margins (~29%), strong cash flows, and manageable capex. HAL has also climbed to the 3rd spot among PSUs by market cap in Jun'25, highlighting sectoral leadership and sustained investor interest.
(The author is Head – Research, Wealth Management,
Motilal Oswal Financial Services Ltd
)
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The latter has been powered primarily by the exports of software services – from $12.8 billion in 2003-04 to $69.5 billion in 2013-14 and $180.6 billion in 2024-25. Equally important is the export of miscellaneous 'business, financial and communication services' – from $37.5 billion in 2013-14 to $118 billion in 2024-25. Thus, services exports are not only from Information Technology engineers writing software code, but also from accountants, auditors, financial analysts, research & development professionals, management consultants and computer data storage providers. All these 'invisible' exports have seemingly been relatively immune to the vicissitudes of global business cycles, financial crises, pandemics, geopolitical conflicts or tariffs wars. And they have grown with not much government efforts at sealing bilateral trade agreements or unveiling production-linked incentive schemes. The ongoing India-US trade talks are largely over the Narendra Modi-led government seeking lower tariffs for the country's exports of textiles, leather, auto components, steel and aluminium products and the Donald Trump administration pushing hard to gain market access for American genetically modified soyabean and corn, ethanol, dairy and other farm produce. 'Invisible' services exports and foreign worker visas aren't part of the negotiations, at least for now. Table 2 (above) shows India's merchandise trade deficit virtually doubling from $147.6 billion in 2013-14 to an all-time-high of $287.2 billion in 2024-25. During the last fiscal ended March 2025, the country's goods imports, at $729 billion, far exceeded its exports of $441.8 billion. But the widening goods trade deficits have been considerably offset by surpluses on the net invisible receipts account, surging from $115.3 billion in 2013-14 to $263.8 billion in 2024-25. As a result, the overall current account deficit in India's balance of payments in 2024-25, at $23.4 billion, was actually lower than the $32.3 billion for 2013-14. Compare this to China that recorded a merchandise trade surplus of $768 billion in 2024, from goods exports of $3,409 billion versus imports of $2,641 billion. But unlike India, China had a deficit of $344.1 billion on its net invisibles account. That led to a narrowing down of its overall current account surplus to $423.9 billion in 2024. China, simply put, is the 'factory of the world' due to its dominance in global manufacturing. That's reflected in its running humungous goods trade surpluses year after year. However, when it comes to services, China's imports in 2024, at $613 billion, were way higher than its corresponding exports of $384 billion. India, on its part, can lay claim to being the 'office of the world'. Its services trade surplus alone was $188.8 billion in 2024-25, with exports at $387.5 billion and imports at $198.7 billion. The large net surplus of $263.8 billion from all 'invisible' transactions, including private remittances, is what helped contain its overall current account deficit to a manageable $23.4 billion in 2024-25. Whichever way one looks at, it is 'invisibles' – and not physical movement of goods – that have been the key drivers of India's foreign trade. Harish Damodaran is National Rural Affairs & Agriculture Editor of The Indian Express. A journalist with over 33 years of experience in agri-business and macroeconomic policy reporting and analysis, he has previously worked with the Press Trust of India (1991-94) and The Hindu Business Line (1994-2014). ... Read More
