At 7.5%, MSTC tops the chart when it comes to dividend yield among the state-run companies. A Miniratna company which offers e-commerce services across sectors, its stock has seen a 17% fall in the past 12 months. State-miner Coal India (CIL) is net in the pecking order with a dividend yield of 6.8% and its shares have declines 14% in the said period.
REC Limited, a power sector NBFC with a dividend yield of 4.8% has seen the sharpest share price erosion of 28% as on Tuesday, November 4 closing.
Power Finance Corporation (PFC) and Gujarat Narmada Valley Fertilizers & Chemicals’ (GNFC) shares have fallen by 14% and 19%, respectively. Their dividend yields are 3.9% and 3.6%.
The dividend yields of the above mentioned stocks have been computed by SBI Securities based on the closing price of October 31, 2025 and this brokerage has considered companies that have consistently paid dividend in the last 3 years i.e. FY25, FY24, and FY23.
ONGC, whose dividend yield is 4.8% has seen its stock fall 5% while Gail (India) with 4.1% dividend yield has plunged in single-digits at 8%.Stocks of National Aluminium Company (dividend yield of 4.5%) and Indraprastha Gas Limited (IGL, 3.3%), each, have managed positive returns of 2%. Meanwhile, NMDC has yielded flat returns over a 1-year period.
Seen as darlings of retail investors, PSU stocks are sentimentally driven. Indian markets have had a roller-coaster ride for the past one year with no decisive trends. Benchmark indices Nifty and Sensex are up 5.3% and 4.7%, respectively while the BSE PSU index has grown 4.2%.
With earnings downgrades, tariff pressures and premium valuations, investors have remained cautious on the PSU story.
Decoding the investor mood, Nilesh Jain, Head Vice President, Equity Research Technical and Derivatives at Centrum Broking said that the market’s focus so far has been on high-growth stocks even as he expect the ongoing time-wise consolidation in PSU names to continue in the near term.
Earnings reality fades euphoria
Many of these high dividend yield stocks are facing earnings headwinds. MSTC, for instance, reported a 32% year-on-year drop in its June quarter consolidated net profit while recording a 55% decline in Q1FY26 revenues. The bottomline has been under pressure for many quarters now. It will announce its Q2 results on November 12.
Nifty constituent Coal India paints a similar picture with a 31% drop in consolidated PAT in Q2FY26 while total revenue rising marginally by 0.5% YoY. Its Q1 earnings were also lower on a YoY basis.
GAIL’s profit plunged 27% in the July-September quarter of FY26 while revenue managed to see a near 5% YoY growth. As for IGL, PAT fell 11% YoY in the June quarter.
REC’s September quarter earnings were 9% higher while total revenue rose 10% YoY and yet the stock has suffered most while NMDC’s underperformance is also despite good quarterly performances. In the September quarter, the national miner has reported 40% YoY PAT growth and 28% revenue uptick.
Meanwhile, National Aluminium and PFC’s lackluster show is despite sound June quarter performances. The September earnings are due to be declared on Friday.
The outlier
Union Bank remains an outlier with 28% returns and an impressive 3.2% dividend yield.
What should investors do?
Jain of Centrum Broking sees formation of base in many of these stocks after a prolonged phase of subdued trading. “Going forward, there could be a gradual shift in focus towards select high dividend yield stocks that also offer some growth potential,” he said.
NALCO is forming a higher top–higher bottom structure, indicating a positive trend with an upside potential towards 250, while support is placed at 222, this analyst said. In his view, MSTC, Coal India, NMDC, ONGC, and IGL can be held as these stocks are currently in consolidation phase and building a strong base, which he said, could lead to an uptick once the phase ends. Meanwhile, GAIL, REC, and PFC are best avoided at this stage, he recommended.
Jain sees more upside for Union Bank towards 160+ with a support at Rs 138. The stock is forming a cup & handle pattern and is on the verge of a breakout, he opined, suggesting a buy.
Prasenjit Paul, an equity analyst at Paul Asset and the fund manager of 129 Wealth Fund, is lately seeing a shift in investors’ mood towards the PSU stocks, indicating a noticeable improvement in appeal.
“This renewed optimism primarily stems from their attractive valuations when compared to private sector peers, coupled 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 earnings and supportive policy initiatives,” Paul said. He is anticipating a short-term rally in the prices of PSU stocks.
Paul’s advice to investors is to not invest in PSU stocks merely because of their high dividend yields. “A higher dividend payout generally indicates that the company has limited avenues for deploying its capital toward future growth, and hence, it chooses to distribute a larger portion of its profits as dividends to shareholders. Therefore, investors should focus on identifying companies that demonstrate strong growth prospects and are trading at attractive or reasonable valuations. Considering the ongoing improvement in asset quality and relatively lower valuations compared to private sector peers, we maintain a positive outlook on PSU banks in the short term,” he said.
Anil Rego Founder and Fund Manager at Right Horizons PMS remains most bullish on banking sector – not seen as a dividend play. “The PSU sector, particularly PSBs, has undergone a fundamental re-rating, underpinned by a rare convergence of structural, policy, and market tailwinds. A few years ago, PSUs were viewed as cyclical or policy-driven plays; today, they are increasingly being recognized as institutionally stronger, more efficient, and financially disciplined entities,” Rego as he suggests a stock selection approach.
Notwithstanding the lean phase of the past year, he remains upbeat on the PSU story, highlighting multibagger returns of the PSU stocks on the 3-5 year basis.
The BSE PSU index has rallied 113% on a three-year basis while delivering staggering returns of 340% over 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 given by the experts are their own. These do not represent the views of The Economic Times.)