Fortune 500 India: PSU juggernaut rolls on amid 'Atmanirbhar' push

THE CENTRE’S POLICY of self-reliance, Atmanirbhar Bharat, rolled out in May 2020, followed by the defence ministry’s decision to localise procurement, fired up the dormant behemoths of the Indian economy — public sector undertakings (PSUs). Industrial goods and defence PSUs were the first to roll out mega investments. In 2021, with the government announcing a huge increase in capital spending, infrastructure PSUs, especially those under the railway ministry, joined the party. The mega commodity supercycle pushed up prices of steel and other metals and benefited metal PSUs. A combination of pre-Covid banking reforms, post-Covid economic recovery, pent-up demand and low interest rates ensured the PSUs were on a roll. The 68 PSUs in the Fortune 500 India list logged a total income of ₹56.14 lakh crore in FY24, from ₹53.79 lakh crore in FY23, while profits grew 40% to ₹5.03 lakh crore.

Led by State Bank of India (SBI), the government banks in the list accounted for one-third of the profits — ₹1,50,691 crore — compared with ₹1,12,606 crore in FY23. SBI accounted for almost half the profits of the PSU banks at ₹67,085 crore, compared with ₹55,648 crore in FY23. The total income of government banks was ₹13.73 lakh crore in FY24, compared with ₹11 lakh crore in FY23.

Banking has been one of the biggest focus areas of the Narendra Modi government since 2014. Finance minister Nirmala Sitharaman recently said banks and corporates have recovered from the twin balance sheet problem due to government policies. “The economy has started feeling the relief of the stress being taken out of banks. The profitability of scheduled commercial banks is at a decadal high with return on assets at 1.3% and return on equity at 13.8%. Gross NPAs (non-performing assets) have declined to a 12-year low of 2.8%,” she said at the SBI Banking and Economics conclave on November 18, adding that both the government and the Reserve Bank of India (RBI) are implementing banking reforms.

Not just banks. Oil & gas PSUs have also performed remarkably. The combined profit of the nine oil & gas PSUs in the Fortune 500 India list more than doubled from ₹70,374 crore in FY23 to ₹1,42,618 crore in FY24.

Railways, too, are chugging ahead with six out of the 27 railway PSUs making it to the list.

Current Concerns

However, amid economic slowdown concerns and subdued corporate results in the second quarter of the current financial year, the PSUs are feeling the heat. While banking and defence are doing well, steel and oil & gas are losing sheen, mainly due to concerns over the state of the global economy. Growth in the near future may largely depend on government interventions, especially at a time when most of the institutions have lowered their GDP growth forecasts for FY25. Morgan Stanley has forecast 6.7% GDP growth. Its earlier estimate was 7%. Economic think-tank National Institute of Public Finance and Policy has cut the GDP forecast to 6.9-7.1% from 7.1-7.4% earlier. The worsening macros have hurt the profitability of PSUs even as their top-line continues to grow. In the first half of the current financial year (April-September), the Fortune 500 India PSUs reported a combined income of ₹27.89 lakh crore, up 6.69% from ₹26.14 lakh crore in the corresponding period of FY24. Their profit after tax fell 6.91% from ₹2,50,030 crore to ₹2,32,758 crore.

In fact, oil PSUs are among the worst hit due to rising crude oil imports and dipping gross refining margins. BPCL’s profit tanked to ₹5,139 crore in the first half of the current fiscal, from ₹18,888 crore in the same period of FY24. IOC’s profit after tax fell from ₹27,551 crore to ₹3,359 crore.

The steel sector is also facing the blues on the back of dumping by China to clear the inventory that has piled up due to the economic slowdown there. “Higher steel imports and the company’s inability to export more steel impacted sales in Q2 FY25, which fell by 15% YoY to 4.1 MTPA,” Axis Securities says in its result update on SAIL.

The finance ministry is, however, bullish about PSU banks. According to its data, the aggregate business of public sector banks in the first half (H1) of the current financial year grew 11% to ₹236.04 lakh crore. “The global credit and deposit portfolio grew 12.9% and 9.5% YoY, respectively, to ₹102.29 lakh crore and ₹133.75 lakh crore, respectively. Operating- and net-profit were ₹1,50,023 crore (up 14.4%) and ₹85,520 crore (up 25.6%), respectively. Gross NPAs declined by 108 bps and net NPAs by 34 bps. The capital to risk weighted assets ratio stood at 15.43% as against the regulatory requirement of 11.5%,” says a finance ministry report.

Infrastructure, meanwhile, is expected to get a fillip with the government slated to spend ₹11.11 lakh crore on building capital assets in the current financial year. Capital expenditure between April and September 2024 was just 37% of the Budget Estimate. A pick-up in spending in the second half of the year bodes well for the infrastructure sector. “Infrastructure continues to be strong. That includes renewable energy, roads and power. Now, we are seeing action in the thermal power space also. Some demand is coming up in steel; it is broad-based,” Ashwini Kumar Tewari, managing director, corporate banking & subsidiaries, SBI, said during the bank’s Q2 earnings call.

In railways, the government is working to significantly enhance the 67,000-km network, which currently handles 23 million passengers and over 14,000 trains daily. It is working on multi-modal corridors for both passenger and freight movement at an investment of ₹11 lakh crore by 2030. It plans to take the network to 90,000 kms. Local defence manufacturing, too, is a focus area. In what should be seen as a feather in India’s defence indigenisation cap, Armenia has bought the Pinaka multi-barrel rocket launcher system; even the French military is considering it.

What began as a resolve and subsequently policy action for self-reliance in the wake of Covid is now bearing fruit.