Shares of India’s state-run companies are surging on Tuesday, November 19, after the government made changes to their capital restructuring norms after eight years.

The Nifty PSE index, an index of India’s 20 state-run companies, is currently trading with gains of over 2%, with all constituents trading with gains between 0.5% to as high as 5.5%.

Shares of Indian Railways Finance Corporation (IRFC) are the top gainers on the PSE index, trading with gains of 5.5%, followed by those of BHEL (up 4.3%), REC and PFC (up 4% each). IRFC shares will also start trading in the Futures & Options space from November 29.

The government has revised capital restructuring norms for these companies with regards to their share buyback, dividend payouts, bonus issues as well as stock splits. These are some of the changes:

• Dividend: CPSEs will now have to pay 4% of their net worth as dividend, as compared to 5% earlier.
• Bonus Issue: Reserves and surplus requirement has been doubled to 20 times its paid up equity capital, compared to 10 times in 2016.
• Stock Split: Market price needs to be 150 times the face value of their equity share, compared to 50 times in 2016. Additionally, there also has to be a mandatory gap of three years before two stock splits for these PSUs, according to the new norms.

The PSE Index has corrected nearly 20% from its recent peak of 11,814, which the index had hit on August 1 this year. Shares of most of these state-run companies have corrected between 20% to 50% from their respective record high levels.

“Amongst the banking and financial space, we are a little partial towards PSU banks, given that we are expecting interest rates will be higher over the next year, year and a half, once Trump comes through, we believe that NBFCs will not do that well, given their fixed rate asset books and between private sector banks and PSU banks, we have a slight preference for PSU banks because valuations look more reasonable. So these are some of the sectors where one can be overweight,” Venkatesh Balasubramaniam, MD & Co-Head-Research, JM Financial Institutional Securities said.

Stocks like IRFC have also declined more than 35% from their peak, which it had it in July this year. Defence stocks like Cochin Shipyard, Bharat Dynamics have nearly halved from their respective peaks.