Best 5 Government Stock to Invest in July 2024 Based on 5Y CAGR

The Indian stock market boasts a diverse landscape, and within it lies a category known for its stability and reliability – government stocks or Public Sector Undertakings (PSUs). These companies, often giants in essential sectors like power, banking, and infrastructure, have long been a mainstay for investors seeking meaningful returns.

However, picking the “best” PSU might be difficult, given the abundance of options. This blog explores the realm of best government stocks, providing you with the necessary information to successfully navigate this potentially lucrative investing path. Let us now have a look at the best government stocks based on 5Y CAGR

Note: The stocks have been sorted based on 5Y CAGR.

1. Hindustan Aeronautics Limited: Hindustan Aeronautics is engaged in the manufacturing of aircraft and helicopters and the repair and maintenance of aircraft and helicopters. FY 2023-24 has been an exceptional year for HAL. Revenues have surged to new heights in FY 2023-24, marking a very significant increase against the preceding year. Revenue from operations almost stood at ₹30,381 crores as compared to ₹26,928 crores in the previous year, almost registering an increase of 13%.
   
   Key Metrics

• Return on Equity (ROE): 28.9%
• Return on Capital Employed (ROCE): 38.9%

2. Bharat Dynamics Limited: Bharat Dynamics (BDL) is a government enterprise in India. It is engaged in the manufacturing of guided missiles and allied defence equipment. During FY 2023-24, the Heavy Weight Torpedo order, Export contract of Light Weight Torpedo, Akash (Indian Air Force) order, etc., were successfully executed and completed the orders. As of March 31, 2024, the company’s order book stood at ₹19,434 crore.Key Metrics

• ROE: 17.9%
• ROCE: 24.2%

3. Bharat Electronics Ltd: Incorporated in 1954, Bharat Electronics Ltd manufactures and supplies electronic equipment and systems to the defence sector. The company also has a limited presence in the civilian market. The turnover has increased to ₹19,819.93 crores, which is a growth of 14.35% compared to the previous year. PBT increased to ₹5,335 crores, which is a growth of 33.87%. PAT increased to ₹4,020 crores, compared to ₹3,007 crores in the previous year, with a growth of 33.68%.Key Metrics

• ROE: 26.4%
• ROCE: 34.8%

4. REC Ltd: REC Ltd is engaged in financing projects in the complete power sector value chain from generation to distribution. REC is a recognised ‘Maharatna’ company controlled by the Ministry of Power (MoP), Government of India. Owing to improving asset quality, effective resolution of stressed assets, resetting of the lending rates, and effective management of Finance Costs, REC is able to record its highest-ever annual profit after tax of ₹ 14,019 crore.Key Metrics

• ROE: 20.40%
• ROCE: 9.30%

5. NHPC Limited: NHPC Limited, formerly known as the National Hydroelectric Power Corporation, is a public-sector hydropower company in India. It was incorporated in 1975 to plan, promote, and organise the efficient development of hydroelectric power. NHPC Limited has secured a foreign currency loan of JPY 20.00 billion from Japan Bank for International Cooperation (JBIC), Japan, for the implementation of renewable projects, including the 300 MW Solar power Project in Bikaner, being developed under the CPSE 1000 MW Scheme.Key Metrics

• ROE: 9.36%
• ROCE: 7.01%

Pros of Investing in Government Stocks

• Stability and Reliability: Government companies often operate in essential sectors like power, banking, or transportation. This translates to steady revenue streams and a lower risk of bankruptcy compared to private companies.
• Government Backing: In times of financial trouble, government PSUs often receive implicit or explicit support from the government, offering a safety net for investors.

Cons of Investing in Government Stocks

• Limited Upside: The predictable nature of PSUs can limit their potential for high returns, especially compared to high-growth private companies.
• Government Influence: Government policies and interventions can sometimes affect the performance of PSUs, impacting stock prices.

Conclusion

Investing in government stocks can help you efficiently diversify your portfolio. However, you must conduct thorough research before investing.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.