Government Urges Mutual Funds to Embrace PSU Stocks: A Shift Towards Balanced Investing
India’s mutual fund sector has witnessed rapid expansion in the last ten years, establishing itself as a significant player in steering market dynamics. However, one segment that continues to be underrepresented in mutual fund portfolios is public sector undertakings (PSUs). In light of this, the Secretary of the Department of Investment and Public Asset Management (DIPAM) has appealed to mutual fund managers to take a serious look at including more PSU stocks in their investment strategies. This call isn’t merely a suggestion—it’s a strategic push. The government is signaling that PSUs are not just legacy institutions, but evolving businesses with strong balance sheets, reliable performance, and untapped value.
Why Mutual Funds Have Avoided PSUs
Historically, mutual funds have been cautious about PSUs. The perception has been that government ownership leads to bureaucratic decision-making, limited innovation, and political interference. As a result, fund managers often preferred private sector companies that were seen as more agile and profit-oriented. But that narrative is changing. Many PSUs have improved operational efficiency, restructured their business models, and shown impressive financial results. Yet, the stigma lingers, and mutual fund exposure to PSUs remains lower than historical averages.
Financial Strength and Dividend Reliability
One of the strongest arguments for including PSUs in mutual fund portfolios is their dividend performance. In the current financial year, public sector companies distributed a record ₹1.5 trillion in dividends, with the government receiving over ₹74,000 crore. This reflects the robust financial position of many of these firms, especially in sectors like energy, banking, and infrastructure.
For mutual funds that prioritize stable income generation and long-term capital preservation, this level of dividend consistency is a valuable asset. It can also help reduce the overall volatility of a portfolio, particularly during uncertain market conditions
Undervalued and Overlooked
Despite their strengths, PSU stocks are often undervalued compared to their private-sector peers. This presents a potential opportunity for mutual funds to enter at attractive valuations. Many PSUs operate in capital-intensive sectors such as oil & gas, mining, power, and defence all of which are critical to the Indian economy and have strong long-term prospects. These companies often have predictable revenue streams, government-backed contracts, and a dominant market share. In an investment environment increasingly focused on long-term value and fundamentals, these are features worth considering.
Aligning With Government Reforms
DIPAM’s push comes at a time when the government is actively pursuing strategic disinvestment. The aim is not just to raise capital, but to increase efficiency, improve corporate governance, and bring in more accountability. By expanding the investor base and enhancing market liquidity, mutual fund involvement can add credibility to this process. Greater institutional involvement also supports transparent price discovery during public offerings or stake sales. This is vital for ensuring that the disinvestment process is not only successful financially, but also seen as credible and fair.
Encouraging Private Sector Accountability
Interestingly, the DIPAM Secretary didn’t stop at PSUs. He also highlighted the need for private corporations to be more accountable to minority shareholders—especially regarding dividend payouts. This indicates a broader push toward corporate governance reform across both public and private sectors, reinforcing the idea that all investors deserve fair treatment.
Mutual Funds as Market Leaders
Mutual funds don’t just allocate capital—they set trends. When they invest in a sector or company, it often sends a message to retail investors and market analysts. A renewed interest in PSUs from large fund houses could lead to a broader re-evaluation of the sector, improving sentiment and boosting investor confidence. Moreover, PSUs can add balance to portfolios that may otherwise be overweight on high-growth or tech-focused companies. Their stability, combined with consistent income, can help mutual funds manage risk more effectively.
Time to Rethink the Bias
The request from DIPAM isn’t just about supporting government-run companies. It’s about recognizing their evolving role in a modern economy. Public Sector Undertakings are evolving to be more financially robust, increasingly competitive, and better responsive to market demands. By ignoring them, mutual funds might be missing out on sustainable long-term gains. With the economy shifting gears, and infrastructure, energy, and defense spending on the rise, many PSUs are poised to benefit directly. It may be the right time for fund managers to reassess their assumptions and give this segment the attention it deserves.
The image added is for representation purposes only
