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As the stock market has largely been on a bull run since hitting the decadal lows around a year ago, stocks of public sector undertakings (PSU) were among the ones which held the torch during the rally and have given strong returns.

The S&P BSE PSU index surged around 79 per cent from the lows it touched in March last year post the announcement of the nationwide lockdown. On Wednesday, the index closed at 7,334.84 points.

This calendar year, the index has increased around 25 per cent, with the latest push to the state-run stocks comes on the back of government's renewed disinvesment plans. The good thing about PSU stocks has been its consistency. The scrip have been moving up slowly but consistently ensuring returns even in time of volatility.

"The recent increase in market prices of PSUs reflects the market's enthusiasm about large value unlocking from their potential privatisation," said a recent report by Kotak Institutional Equities.

It noted that the government can raise Rs 12 lakh crore if it was to sell its entire holdings in all listed central PSUs at current valuations. The amount could be higher given the likely strategic premium.

A recent note by Jefferies India said that after raising Rs 1 lakh crore through the exchange-traded fund (ETF) route over FY19 and FY20, the government stopped the practice in FY21, which has reduced the equity supply pressure. Jefferies analysts noted that Centre shifted towards privatisation from 2019 onwards.

The new disinvestment policy which was announced in the Union Budget for FY22 shows that the government plans to sell its stake in most of the state-run companies and exit all non-strategic sectors.

In the Union Budget for FY22, the disinvestment target for next fiscal has been set at Rs1.75 lakh crore.

Shares of Bharat Petroleum Corporation Ltd, which is among the star companies in the government's privatisation log has surged 22 per cent since January 1. On Wednesday, its share price on the BSE was at Rs 466.40 per share.

Finance Minister Nirmala Sitharaman, presenting her third Union Budget on February 1, said that all the announced divestment proposals will be completed in this fiscal, which includes BPCL.

Further, the government's plan to come up with IPO of insurance giant LIC also has been a positive for the markets.

Another state run major, Coal India Ltd has witnessed a 14 per cent growth in its share price during this calendar year. On Wednesday, its share price ended at Rs 154.85 per share on the BSE.

Indian Oil's (IOCL) shares have increase 12 per cent in the past two months.

Shares of Shipping Corporation of India Ltd (SCIL), another company put on the block by the government, have surged nearly 40 per cent since the start of 2021.

The Kotak report, however, noted that the government's plan and the market's enthusiasm may face two issues.

"The list of strategic sectors is quite long and 1-2 companies in the strategic sectors may remain as PSUs in the foreseeable future. Thus, companies such as BEL, COAL, HAL, IOCL, NTPC, ONGC and others may remain as PSUs," it said.

Nonetheless, the government can raise Rs 5 lakh crore by selling its entire stake from a smaller subset of listed companies at current valuations.

Further, it said that the terminal value of PSUs in coal, petroleum, power is quite uncertain and questionable without meaningful restructuring given their business models face serious disruption.

"Thus, we are not very clear about the interest levels of strategic buyers even if the government was to press ahead with its ambitious privatisation program. In fact, these companies account for a significant portion of the value of the government's stake in PSUs," it said.