Why Government Stocks Are Cheap, And What You Should Know!

Ever come across a government stock that looks like an absolute steal—low P/E, high dividend yield, massive market share—and thought, “Why isn’t everyone buying this?” You’re not alone. This question hits every curious investor at some point. The truth is, government stocks (aka PSUs) are often cheap for a reason. But that doesn’t mean they don’t have value.

This guide breaks it all down—the why, the risks, and the hidden opportunities.

Why Government Stocks Are Cheap (And It’s Not a Mistake)

1. They Serve Two Masters: Shareholders and the Government

In a private company, the goal is simple: grow shareholder value. But with PSUs, it gets complicated. They’re expected to serve the public interest too.

Subsidy Burden: Think BPCL and HPCL. During high oil prices, they sometimes can’t pass on costs to consumers. Their margins? Crushed.
Forced Dividends: Cash-rich PSUs are often “requested” to pay big dividends to help plug fiscal deficits. That money could’ve been reinvested.

2. Bureaucratic Culture = Slow Moves

Ever heard the phrase “sarkari lethargy”? It shows.

Decision-making takes time. Approvals stack up.
Many PSUs lack the aggressive growth mindset private companies thrive on.

Classic case: BSNL vs. Jio. Enough said.

3. Disinvestment Overhang

When the government says it’ll sell part of its stake in a PSU, investors hesitate.

More supply = downward price pressure.
Institutions wait for discounted OFS (Offer For Sale).

4. Weird Mergers & Capital Allocation

Sometimes, strong PSUs are forced to rescue weaker ones. It might be “strategic,” but it’s rarely profitable.

But Don’t Write Off PSUs Just Yet

1. Dominant Players in Critical Sectors

Coal India, IRFC, HAL—these aren’t just companies, they’re monopolies or near-monopolies.

Entry barriers are sky-high.
They’re embedded into national infrastructure.

2. Dividend Machines

If you’re an income investor, PSUs can be a dream.

Regular, high dividend payouts
Lower volatility, if you’re not chasing capital gains

3. Thematic Rallies Are Real

Government push = stock rally.

Infra push? Construction PSUs soar.
Defense boost? HAL and BEL get re-rated.

Between 2022-24, PSU indices saw multi-year highs during policy-heavy periods.

4. Safer in Crises

PSUs are backed by the Government of India. Unlike small private firms, they’re unlikely to collapse overnight.

How to Approach PSU Stocks

Know What You’re Buying: You’re not betting on fast growth. You’re betting on value + dividends + possible cycles.
Watch for Catalysts: Budget announcements, disinvestment news, policy changes.
Pick Market Leaders: Choose the strong ones in strong sectors.
Think Long-Term: They’re not for the impatient. But patience here can pay.

Conclusion:

Government stocks are cheap. But they’re not “cheap” in the clueless sense. They’re cheap in the calculated, deliberate sense. The market knows their flaws. Yet within that space, opportunities do exist. If you can think differently, tolerate some policy drama, and see value where others see baggage, PSUs might just reward you.

They aren’t misunderstood gems. They’re undervalued for a reason—and that reason might just work in your favor.

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Written by Shreyal – Financial Content Writer, Puneri Pages