PPFAS view on Indian PSUs

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The PPFAS view on Indian PSUs is the body of investment reasoning through which PPFAS Mutual Fund has periodically built and maintained substantial positions in Indian Public Sector Undertaking (PSU) equities at the Parag Parikh Flexi Cap Fund, including the long-running positions in Coal India, Power Grid Corporation of India, NTPC and ONGC, together with periodic positions in additional PSU names. The PSU view is structurally consistent with the broader PPFAS investment philosophy of value investing, margin of safety and contrarian investing, and has been articulated continuously through monthly factsheet commentary by Chief Investment Officer Rajeev Thakkar and at the PPFAS Annual Unitholders’ Meet by the broader investment team.

The PPFAS PSU thesis rests on five principal pillars. The first is the contrarian-build discipline: PSU positions have typically been built during periods of materially negative broader-market sentiment toward PSU equities, when valuations have compressed to levels that the PPFAS investment team has assessed as offering substantial margin of safety. The second is the valuation discipline: PSU positions have been entered at substantial discounts to estimated intrinsic value, typically reflecting price-to-earnings, price-to-book and EV-to-EBITDA multiples materially below private-sector peers in comparable end markets. The third is the capital-intensive moat thesis: many of the PSU holdings operate in capital-intensive regulated-utility or natural-resource-extraction end markets where the scale of installed assets and the regulatory framework produce durable competitive moats that are difficult to replicate. The fourth is the high dividend yield: the PSU holdings have historically offered dividend yields materially higher than the broader Nifty 500 average, providing a cash-flow anchor for the position thesis. The fifth is the PSU privatisation optionality: periodic government policy signals on PSU strategic-stake reductions and on PSU privatisation introduce additional upside optionality to PSU positions, although the PPFAS thesis does not depend on privatisation outcomes.

The PSU view has been operationally implemented through long-term holdings at PPFCF rather than through short-term tactical positioning. As of the April 2026 PPFCF factsheet, Power Grid Corporation of India was the second-largest holding at 6.99 per cent of corpus and Coal India was the third-largest holding at 5.95 per cent of corpus, both as top-three portfolio positions. The combined PSU exposure at PPFCF has periodically exceeded 15 per cent of corpus, reflecting the substantive role of the PSU view within the broader portfolio.

This article is the principal reference on the PSU view within the broader PPFAS investment philosophy corpus. Related references include the contrarian investing at PPFAS doctrine article, the margin of safety framework article, the intrinsic value methodology article and the broader scheme-level treatments at the Parag Parikh Flexi Cap Fund article and the umbrella PPFAS Mutual Fund page.

The contrarian build discipline

PSU underperformance cycles

Indian PSU equities have experienced multiple distinct cycles of broader-market underperformance over the post-2010 period:

  • 2014 to 2020 underperformance cycle: The broader BSE PSU Index materially underperformed the Nifty 50 and the Nifty 500 during this period, reflecting concerns over PSU corporate governance, capital allocation, government-strategic-stake overhang and end-market secular shifts.
  • 2020 COVID-19-related underperformance: PSU equities, particularly in the energy and metals sectors, underperformed substantially during the early stages of the COVID-19 disruption, with materially compressed valuations.
  • Periodic sector-specific dislocations: PSU banking equities have experienced multiple cycles of asset-quality stress and consequent valuation compression.

PPFAS has historically built PSU positions during such underperformance cycles, with position sizes scaled to reflect the magnitude of the valuation discount and the assessed margin of safety. The contrarian-build discipline is structurally consistent with the broader contrarian investing framework at PPFAS.

Contrarian rationale

The contrarian rationale for PSU position-building rests on the observation that broader-market underperformance cycles often produce valuation compression that is materially out of proportion to the underlying fundamental business performance, particularly for PSU holdings operating in regulated-utility or natural-resource-extraction end markets where the underlying business economics are relatively stable through market cycles. The willingness to build positions when the broader market is selling reflects the value-investing principle of investment based on fundamental business analysis rather than on price action or crowd behaviour, an explicit application of the Benjamin Graham Mr Market framework.

The valuation discipline

Multiples-based valuation framework

PPFAS’s valuation discipline applied to PSU holdings has typically been multiples-based, with reference to price-to-earnings, price-to-book, EV-to-EBITDA and dividend-yield comparisons against private-sector peers and against the broader Nifty 500 average. PSU positions have been entered at periods when these multiples were materially below the equivalent multiples at private-sector peers in comparable end markets.

Discounted cash flow cross-checks

The multiples-based framework has been cross-checked through discounted cash flow analysis, particularly for the regulated-utility holdings (Power Grid Corporation, NTPC) where the regulated tariff framework produces relatively predictable long-duration cash flows that are amenable to discounted-cash-flow valuation. The intrinsic-value cross-check has provided additional confirmation of the margin of safety inherent in PSU entry-point valuations.

Comparison with private-sector peers

The PSU valuation discipline has explicitly compared PSU holdings against private-sector peers in comparable end markets. For example, Coal India has been compared with global thermal-coal producers and with Indian private-sector mining peers; Power Grid Corporation has been compared with global regulated-utility peers; NTPC has been compared with private-sector independent-power-producers; ONGC has been compared with global upstream oil-and-gas peers. The valuation discount at PSU holdings, measured against such peer comparisons, has been a principal indicator of the margin of safety.

The capital-intensive moat thesis

Regulated-utility moats

The PSU holdings in regulated-utility end markets exhibit structural competitive moats that are difficult to replicate. Power Grid Corporation, as the dominant Indian inter-state power transmission utility, operates a network of high-voltage transmission infrastructure that would require decades and tens of thousands of crore of capital expenditure to replicate. NTPC, as the largest Indian thermal-power generator, operates installed thermal-generation capacity at scale that is difficult to replicate by new entrants. The PSU regulated-utility moats are reinforced by the regulatory framework that grants returns-on-equity through tariff-determination mechanisms operated by the Central Electricity Regulatory Commission.

Natural-resource-extraction moats

The PSU holdings in natural-resource-extraction end markets exhibit structural advantages stemming from the historical government-led allocation of mineral resources. Coal India, as the dominant Indian thermal-coal producer with substantial coal reserves and infrastructure, operates a near-monopoly position in domestic thermal coal production. ONGC, as the largest Indian upstream oil-and-gas producer, operates substantial domestic oil-and-gas reserves and infrastructure that would be difficult for new entrants to replicate.

Free cash flow generation

The capital-intensive PSU holdings have historically generated substantial free cash flow, with capital expenditure substantially funded from operating cash flow without recourse to incremental external financing. The free cash flow has been returned to shareholders through high dividend payouts and, in some cases, share-repurchase programmes.

The high dividend yield

Dividend-yield comparison

The PSU holdings at PPFCF have historically offered dividend yields materially higher than the broader Nifty 500 average. Coal India, in particular, has periodically traded at dividend yields exceeding 10 per cent during periods of compressed valuation, with NTPC, Power Grid Corporation and ONGC also offering substantially higher dividend yields than the broader market.

Dividend-cash-flow anchor

The high dividend yields provide a cash-flow anchor for the PSU position thesis. The cash-yield component of expected total return is substantively higher at the PSU holdings than at broader-market alternatives, providing a quantifiable lower bound on expected total return that is less dependent on multiple-expansion outcomes.

Tax treatment of PSU dividends

PSU dividends are taxed in the hands of recipients at applicable slab rates following the abolition of the dividend distribution tax in April 2020 (Finance Act 2020). For mutual fund unitholders, the tax efficiency of PSU dividend yields is preserved through the mutual fund structure, with dividends received by the scheme reinvested into the corpus and the unitholder taxed only at the point of unit redemption under Section 112A (long-term capital gains tax) or Section 111A (short-term capital gains tax), depending on the holding period.

PSU privatisation considerations

Government strategic-stake framework

The Government of India has historically held substantial majority stakes in PSU listed companies, ranging from 51 to 75 per cent in most cases. Periodic government policy signals on PSU strategic-stake reductions and on broader PSU privatisation have introduced incremental optionality into PSU position theses, although the PPFAS thesis does not depend on privatisation outcomes.

Notable PSU privatisation episodes

Notable PSU privatisation and strategic-stake-reduction episodes have included:

  • The Air India sale (concluded January 2022, with the Tata Group acquiring the airline from the Government of India).
  • The proposed Bharat Petroleum Corporation Limited (BPCL) strategic-stake sale (initiated 2019 to 2020 but withdrawn in 2022 due to evolving energy-market conditions).
  • The Life Insurance Corporation IPO (May 2022, with the Government of India retaining a substantial majority stake).
  • Periodic Offer-for-Sale and Bharat 22 ETF disinvestment transactions through which the Government of India has reduced strategic stakes in multiple PSU listed companies.

PSU privatisation outcomes typically produce material share-price re-ratings, providing upside optionality for PSU holdings.

PPFAS approach to privatisation optionality

The PPFAS approach has been to treat PSU privatisation optionality as an upside-only consideration rather than a principal component of the position thesis. PSU positions have been built on the basis of standalone fundamental business value at PSU-control valuation multiples, with privatisation outcomes providing potential incremental upside but not being necessary for the position thesis to perform.

Specific PSU holdings at PPFCF

Coal India

Coal India Limited is the dominant Indian thermal-coal producer, with substantial coal reserves and integrated mining-and-logistics infrastructure. Coal India has been a long-running PPFCF holding, with the position size scaled at multiple points to reflect the prevailing valuation discount. As of the April 2026 PPFCF factsheet, Coal India was the third-largest holding at 5.95 per cent of corpus. The PPFAS thesis on Coal India rests on the structural domestic thermal-coal demand from the regulated-utility and steel end markets, the historical low-cost-production position of the company, and the consistent high-dividend-yield distribution.

Power Grid Corporation

Power Grid Corporation of India Limited is the dominant Indian inter-state power transmission utility, operating a high-voltage transmission network that is the principal mechanism for inter-state power transfer. Power Grid Corporation has been a long-running PPFCF holding, with the position elevated to the second-largest holding (6.99 per cent of corpus) as of the April 2026 PPFCF factsheet. The PPFAS thesis on Power Grid Corporation rests on the regulated-tariff return-on-equity framework, the structural Indian power-transmission capacity-expansion programme and the high-dividend-yield distribution.

NTPC

NTPC Limited is the largest Indian thermal-power generator and a substantial renewable-power developer. NTPC has been a periodic PPFCF holding, with positions built during periods of compressed valuation reflecting market concerns over thermal-power-generation end-market shifts. The PPFAS thesis on NTPC rests on the regulated-tariff framework for thermal-power generation, the ongoing renewable-power transition (NTPC has committed to substantial renewable-power capacity additions) and the high-dividend-yield distribution.

ONGC

Oil and Natural Gas Corporation Limited is the largest Indian upstream oil-and-gas producer, with substantial domestic onshore and offshore production assets. ONGC has been a periodic PPFCF holding, with positions built during periods of compressed valuation reflecting market concerns over upstream oil-and-gas end-market shifts. The PPFAS thesis on ONGC rests on the structural Indian oil-and-gas import-substitution demand, the underlying reserve base and the high-dividend-yield distribution.

Operational evolution at PPFCF

Early period (2013 to 2017)

During the early years of PPFCF, PSU exposure was relatively limited, with the foreign-core allocation and the Indian private-sector financial-and-consumption exposure constituting the principal portfolio. PSU positions were built selectively during periods of compressed valuation.

Middle period (2018 to 2022)

The middle period of PPFCF was characterised by progressive PSU position-building, particularly during the 2018 to 2020 period when the broader BSE PSU Index materially underperformed the Nifty 50. PPFAS built positions in Coal India, Power Grid Corporation and selected other PSU holdings during this period at materially compressed valuations.

Post-cap period (2022 to 2026)

The post-cap period has been characterised by elevated PSU exposure at PPFCF, both in absolute Rupee terms and as a percentage of corpus. The PSU exposure has partially substituted for the structurally constrained foreign-core exposure under the SEBI overseas cap framework, with the available incremental capital deployed into Indian large-cap and PSU holdings at acceptable valuations.

2024 to 2026 PSU re-rating

The 2024 to 2026 period has been characterised by substantial PSU re-rating, with PSU equities outperforming the broader market substantially. The PSU positions built at PPFCF during the 2018 to 2022 period have benefited materially from this re-rating, with Power Grid Corporation and Coal India contributing substantially to PPFCF performance.

Recent developments

April 2026 PPFCF factsheet

The April 2026 PPFCF factsheet shows Power Grid Corporation as the second-largest holding at 6.99 per cent of corpus and Coal India as the third-largest holding at 5.95 per cent of corpus, both as top-three portfolio positions. The combined PSU exposure at PPFCF has periodically exceeded 15 per cent of corpus during the 2024 to 2026 period.

PSU re-rating commentary

The PPFAS monthly factsheet commentary by Rajeev Thakkar has periodically discussed the PSU re-rating, with the broader view that the underlying fundamental business performance at the PSU holdings has been consistent with the position thesis, and that the market-driven re-rating reflects the closing of valuation discounts that were previously available.

Trimming considerations

As PSU valuations have re-rated, PPFAS has periodically trimmed PSU positions where the prevailing valuations have approached or exceeded estimated intrinsic value. The trimming discipline is structurally consistent with the broader valuation discipline at PPFAS, with positions reduced as the margin of safety compresses.

Criticism and debates

Government-control overhang

PSU holdings carry the structural overhang of Government of India majority shareholder control, which can produce capital-allocation decisions, dividend-payout decisions and operational decisions that differ from private-sector-controlled equivalents. PPFAS has acknowledged the government-control consideration while maintaining that the structural moats and the valuation discounts produce attractive risk-adjusted returns.

End-market secular shifts

Several of the PSU holdings operate in end markets exposed to secular shifts (thermal coal and thermal power facing the renewable-energy transition, upstream oil-and-gas facing the electric-vehicle transition). PPFAS has acknowledged the secular-shift considerations while maintaining that the multi-decade transition timelines and the persistent free cash flow generation produce attractive risk-adjusted returns within reasonable investment-horizon frameworks.

Concentration in PSU holdings

The elevated PSU exposure at PPFCF during the 2024 to 2026 period has produced concentration that has been argued to represent excessive sectoral concentration. PPFAS has responded that PSU holdings operate across distinct end markets (thermal coal, power transmission, thermal-and-renewable power generation, upstream oil-and-gas) and that the sectoral classification understates the diversification benefits.

See also

External references

References

  1. PPFAS Mutual Fund monthly factsheets, various months 2013 to 2026 (Rajeev Thakkar commentary on PSU holdings).
  2. PPFAS Mutual Fund Annual Unitholders’ Meet presentations, 2014 to 2025.
  3. PPFAS Mutual Fund, “Local Fund with Global Focus” framework page.
  4. INDmoney, “PPFAS Flexi Cap April 2026 portfolio update.”
  5. Coal India Limited, NTPC Limited, Power Grid Corporation of India Limited, Oil and Natural Gas Corporation Limited, Annual Reports and investor presentations, various years.
  6. Government of India, Department of Investment and Public Asset Management (DIPAM), strategic-disinvestment policy documents.
  7. AngelOne, “Parag Parikh Flexi Cap Fund crosses one lakh crore AUM,” 2025.
  8. BusinessToday, “Why PPFAS Flexi Cap Fund is holding cash even after a 10 per cent fall,” 14 May 2026.
  9. Central Electricity Regulatory Commission tariff regulations and orders, various years.
  10. SEBI, Mutual Funds Regulations 1996.

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