Best Government Stocks to Invest in August 2024 Based on 5Y CAGR

Are you an investor trying to find a trustworthy way to build wealth in the Indian stock markets over the long term? If so, Public Sector Undertakings (PSUs) may be familiar to you. You will realise why they are essential to achieving India’s aspirations for lasting national wealth once you comprehend their basic role in directing entire sectors and constructing essential infrastructure.

This article explores the world of best PSU 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 in August 2024, based on 5Y CAGR.

Note: The stocks have been sorted based on 5Y CAGR as of August 20, 2024

1. Rail Vikas Nigam Ltd (RVNL): Incorporated in 2003, RVNL is engaged in the business of implementing various types of Rail infrastructure projects assigned by MoR, including doubling, gauge conversion, new lines, railway electrification, major bridges, workshops, etc. In July 2024, RVNL signed a Memorandum of Understanding (MoU) with United Construction Limited, Israel, to cooperate with each other to get projects in the field of Railways, MRTS, Tunnels, Roads (Highways & Expressways), Bridges, Building Works, Airports, Ports, Irrigation, Power Transmission and Distribution Sector, Solar Sector, Wind Sector in Israel.

Key Metrics:

• Return on Equity (ROE): 20.4%
• Return on Capital Employed (ROCE): 18.7%

2. 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:

• ROE: 28.9%
• ROCE: 38.9%

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: 34.6%

4. Bharat Dynamics Limited: Bharat Dynamics (BDL) is a government enterprise in India. It manufactures 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 the orders were placed. As of March 31, 2024, the company’s order book stood at ₹19,434 crore.

Key Metrics:

• ROE: 17.9%
• ROCE: 24.2%

5. Bharat Heavy Electricals Ltd: Bharat Heavy Electricals Ltd is an integrated power plant equipment manufacturer engaged in design, engineering, manufacture, erection, testing, commissioning and servicing of a wide range of products and services for the core sectors of the economy, viz. Power, transmission, Industry, transportation, renewable energy, Oil & Gas and defence. During FY2024, BHEL achieved the highest-ever order inflow of ₹77,907 Crore, with orders in both core thermal power and diversified sectors such as transportation, defence, and transmission.

Key Metrics:

• ROE: 1.13%
• ROCE: 3.37%

What is PSU Stock (Public Sector Undertakings)?

PSU stocks are incorporated public sector enterprises in which the government owns a majority stake (more than 50%) to meet the public’s requirements in sectors like resources, energy, finance, and transportation.

Through decades of process improvement and accruals, PSUs have grown and reached neglected areas with budgetary support.

Pros of Investing in Government/PSU 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/PSU 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 PSU stocks can offer stability and government backing, making them attractive for conservative investors seeking steady returns. 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.