REC Limited, a power sector NBFC with a dividend yield of 4.8%, has seen the sharpest price erosion of 28% on Tuesday, November 4.Shares of Power Finance Corporation (PFC) and Gujarat Narmada Valley Fertilizers & Chemicals (GNFC) have fallen 14% and 19% respectively. Their dividend yields are 3.9% and 3.6%.
The dividend yields of the above-mentioned stocks have been calculated by SBI Securities based on the closing price of October 31, 2025 and this brokerage has considered companies that have been consistently paying dividends for the last three years, i.e. FY25, FY24 and FY23.
ONGC, with a dividend yield of 4.8%, has seen its shares fall 5%, while Gail (India) with a dividend yield of 4.1% is down single digits to 8%. Shares of National Aluminum Company (4.5% dividend yield) and Indraprastha Gas Limited (IGL, 3.3%) have each returned 2% positive. Meanwhile, NMDC has delivered flat returns over a one-year period.
PSU stocks are considered the darlings of retail investors and are sentimentally driven. Indian markets have had a rollercoaster ride over the past year with no decisive trends. Benchmark indices Nifty and Sensex are up 5.3% and 4.7% respectively, while the BSE PSU index is up 4.2%.
Downward earnings revisions, rate pressure and premium valuations have kept investors cautious on the PSU story.
Deciphering the mood among investors, Nilesh Jain, Head Vice President, Equity Research Technical and Derivatives at Centrum Broking, said the market’s focus so far has been on high growth stocks, even as he expects the ongoing time consolidation in PSU names to continue in the near term.
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The profit reality blurs the euphoria
Many of these high dividend yield stocks are facing earnings headwinds. For example, MSTC reported a 32% year-on-year decline in consolidated net profit in the June quarter, while revenue fell 55% in Q1FY26. The result has been under pressure for many quarters. The company will announce its second quarter results on November 12.
Nifty Coal India section paints a similar picture with 31% decline in consolidated PAT in Q2FY26, while total revenue increases marginally by 0.5% YoY. First-quarter profits were also lower year-on-year.
GAIL’s profits fell 27% in the July-September quarter of FY26, while revenue managed to grow almost 5% year-on-year. In terms of IGL, PAT fell 11% year-on-year in the June quarter.
REC’s September quarter profits were up 9%, while total revenue rose 10% year-over-year. Yet the stock has suffered the most, while NMDC’s underperformance continues despite good quarterly performance. In the September quarter, the national miner reported 40% year-on-year growth and a 28% increase in revenue.
Meanwhile, National Aluminum and PFC’s lackluster showing despite good performance in the June quarter. September earnings will be announced on Friday.
The outlier
Union Bank remains an outlier with a yield of 28% and an impressive dividend yield of 3.2%.
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What should investors do?
Centrum Broking’s Jain sees base formation in many of these stocks after an extended phase of subdued trading. “Going forward, there could be a gradual shift in focus towards select stocks with high dividend yields that also offer some growth potential,” he said.
NALCO is forming a higher top-higher bottom structure, indicating a positive trend with upside potential towards 250, while support is placed at 222, this analyst said. According to him, MSTC, Coal India, NMDC, ONGC and IGL can be held as these stocks are currently in the consolidation phase and building a strong foundation, which he believes could lead to a rise once the phase is over. Meanwhile, GAIL, REC and PFC are best avoided at this stage, he recommended.
Jain sees more upside potential for Union Bank towards 160+ with a support at Rs 138. The stock is forming a cup and handle pattern and is on the verge of a breakout, he opined, while suggesting a buy.
Prasenjit Paul, an equity analyst at Paul Asset and the fund manager of 129 Wealth Fund, has seen a shift in investor sentiment towards the PSU stock of late, indicating a noticeable improvement in appeal.
“This renewed optimism mainly stems from their attractive valuations compared to private sector peers, combined with the appeal of higher dividend yields. In addition, several other factors are contributing positively, such as the presence of a stable government, better-than-expected quarterly figures and supportive policy initiatives,” said Paul. He expects a short-term rally in PSU share prices.
Paul’s advice to investors is not to invest in PSU stocks purely because of their high dividend yield. “A higher dividend payout generally indicates that the company has limited ability to deploy its capital for future growth, and therefore it is opting to pay out a larger portion of its earnings as dividends to shareholders. Therefore, investors should focus on identifying companies that exhibit strong growth prospects and trade at attractive or reasonable valuations. Given the continued improvement in asset quality and relatively lower valuations compared to peers, we maintain a positive view on PSU banks in the near term,” he said.
Anil Rego founder and fund manager at Right Horizons PMS remains the most bullish on the banking sector – and is not seen as a dividend payer. “The PSU sector, especially PSBs, has undergone a fundamental revaluation, underpinned by a rare convergence of structural, policy and market tailwinds. A few years ago, PSUs were seen as cyclical or policy-driven plays; today they are increasingly recognized as institutionally stronger, more efficient and financially disciplined entities,” as Rego proposes a stock selection approach.
Despite the lean phase of the past year, he remains bullish on the PSU story, highlighting the multibagger returns of the PSU stocks over a three-to-five year period.
The BSE PSU index has risen 113% over three years and has delivered a staggering 340% return in the last five years. This is an outperformance over Nifty’s 40% and 116% returns in the respective period.
(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the views of The Economic Times.)
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