Top 4 Indian Government Midcap Stocks Set for Explosive Growth in 2024

2024 could possibly be the year of stocks backed by the Indian government.

Why, you ask?

For starters, 2024 being an election year, is already anticipating key policy changes that could keep certain stocks on the radar of investors.

The Modi led government has made it a mission to steer 'New India' towards the path of development and progress.

Over the last nine years, there has been a flood of social welfare schemes, PLI initiatives, and policies for the betterment of the country and its citizens.

One thing has become crystal clear - if the government continues its huge capex plans at the same pace that we've seen in the past two years, the market could further award premium valuations to government stocks.

Keeping that in mind, we'll highlight the top 4 government stocks from the midcap space. These have multiple tailwinds working in their favour at present.

By the way, we also covered a detailed editorial in December 2023 highlighting the top 10 government stocks. Do take a look if you haven't...

#1 General Insurance Corporation of India (GIC)

First on the list of Indian government midcap stocks is General Insurance Corp.

GIC is a public sector insurance company that provides reinsurance across many business lines like fire (property), marine, motor, engineering, agriculture, aviation/space, health, liability, credit and finance, and life insurance.

It was the sole domestic reinsurer until late 2016.

The company's stock price surged about 60% in 2023 primarily due to the increase in awareness and demand for health insurance and an economic recovery, which has helped automobiles and property demand reach its pre-pandemic levels.

Here are some of the key metrics of GIC.

Consolidated, Rs bn	FY23	FY22	FY21	FY20	FY19
Revenue	472.5	495.8	485.8	519.2	449.3
Net Profit	65.8	22	18.2	-2.8	26.4
Operating Margin (%)	18.3	7.7	6.4	-0.7	8.6
ROCE (%)	12.8	6.4	5.9	-0.9	6.9
ROE (%)	15.3	8.3	6.1	-0.7	8.1
Debt to Equity (x)	0	0	0	0	0
P/E (x)	3.4	8.4	17.6	-99.3	15.4

Source: Equitymaster

There are several bullish factors signaling that GIC could be set for explosive growth in 2024.

The Indian insurance market is on a tear, expected to grow at a CAGR of 12.1% until 2027, coupled with a robust network of branch offices and partnerships across India.

GIC boasts unparalleled reach and market penetration. This translates to a larger pie for GIC, boosting its premium income.

The opening up of the Indian reinsurance market to foreign players presents GIC with an opportunity to leverage its local expertise and strong relationships to establish itself as a dominant player.

The company is also heavily invested in artificial intelligence (AI) and data analytics, which are poised to take over the world in the coming years.

With overseas branches in key markets like the UK and UAE, GIC is capturing a slice of the global reinsurance market. This international exposure expands its revenue base and offers access to higher margins.

As a public sector undertaking, GIC enjoys implicit government support, granting it a crucial edge in terms of regulatory approvals and access to capital.

#2 National Mineral Development Corporation (NMDC)

Second on the list is India's largest iron ore producer and exporter, NMDC.

NMDC is a Navratna company that is involved in exploration and extraction of minerals, diamond, and silica.

In calendar year 2023, the company's stock price surged 66%, fueled by soaring steel demand and export boom.

Here are the company's key metrics.

Consolidated, Rs bn	FY23	FY22	FY21	FY20	FY19
Revenue	176.7	258.8	153.7	117	121.5
Net Profit	55.4	93.9	62.5	36	46.4
Operating Margin (%)	36.7	50.3	58	53.2	59.5
ROCE (%)	27	34.3	28.4	21.8	26.9
ROE (%)	24.8	26.8	21	12.9	17.7
Debt to Equity (x)	0	0.1	0.1	0	0
P/E (x)	5.8	5.1	6.5	6.9	7.1

Source: Equitymaster

With the government's push for infrastructure and a surge in private investments, India's steel demand is set to rise by 7% in 2024.

This is great news for NMDC as it means more demand for their iron ore, leading to a healthy boost in both revenue and profit.

Apart from that, global steelmakers, facing disruptions in traditional supply chains, are turning to India for high-quality iron ore.

NMDC, with its efficient logistics and consistent quality, is ideally positioned to capitalize on this export surge.

NMDC is aggressively expanding its mining capacity, with several new projects in the pipeline. This might create economies of scale, leading to lower production costs and higher margins.

Its foray into downstream steel production through its own pelletization plants further strengthens its market presence.

NMDC has also made significant investment in data analytics and automation to optimise mining operations and logistics.

The company boasts a robust financial position with minimal debt and healthy cash reserves, providing it with the flexibility to pursue strategic acquisitions and investments.

As a public sector undertaking, NMDC enjoys policy tailwinds and regulatory support from the government. This translates to easier access to resources and permits, facilitating faster growth.

Fluctuations in global steel prices and dependence on domestic infrastructure spending are factors that may affect the growth spree, however the tailwinds of the steel boom paint a picture of explosive growth potential for NMDC in 2024.

And let's not forget the critical minerals mines auction that is set to take centerstage in 2024, which could ultimately benefit mining companies like NMDC.

#3 Oil India

Coming in at number 3, is Oil India.

Oil India is a central public sector undertaking engaged in operations across the entire oil and gas value chain, from exploration and production to transportation and marketing.

In the calendar year 2023 gone by, its share price rocketed by over 70%, and currently trades near all-time high.

The company's robust performance can be attributed to its strategic focus on exploration and production activities, as well as its diversified portfolio that includes crude oil, natural gas, and liquid petroleum gas.

Have a look at its financial metrics for the past five years.

Consolidated, Rs bn	FY23	FY22	FY21	FY20	FY19
Revenue	368.2	270.5	187.2	219.6	149.1
Net Profit	98.5	66.1	36.2	39.5	20.9
Operating Margin (%)	38.9	37.9	28.1	23.5	37.6
ROCE (%)	21.5	18.2	11.1	11.7	11.7
ROE (%)	22.7	18.4	14.9	20.3	11.2
Debt to Equity (x)	0.5	0.5	0.8	0.6	0.4
P/E (x)	3.1	4.6	3.8	1.9	6.5

Source: Equitymaster

India's energy consumption is projected to grow at a CAGR of 5.7% until 2027, boosting demand for Oil India's output.

The company has secured exploration blocks with significant hydrocarbon potential in Assam, Krishna Godavari Basin, Andaman Sea, Vietnam, and Mozambique promising future reserves growth.

It's also venturing into renewable energy like biofuels and geothermal, hedging against oil price volatility and opening new revenue streams.

The company has invested heavily in research and development for cutting-edge exploration and production technologies that are unlocking new reserves and enhancing efficiency.

Oil India also boasts a highly skilled workforce with decades of experience in navigating the complexities of the energy sector.

As a vital national asset, it enjoys consistent policy support and access to resources from the government.

Inherent risks like oil price volatility and geopolitical uncertainties are overdone by Oil India's diversified energy portfolio and the tailwinds of India's growing energy sector.

#4 Petronet LNG

The final company on the list is a government-backed behemoth that stands at the crossroads of India's burgeoning gas aspirations.

Petronet LNG is dedicated to the development of facilities for the import, storage, and regasification of Liquefied Natural Gas (LNG).

It imports roughly 45% of India's LNG, regasifies it at its 11 terminals across the country, and then channels it through a vast network of pipelines to fuel power plants, industries, and households.

The company's stock price has recovered by more than 15% from its 52 week low hit recently, riding on the tailwinds of rising domestic gas demand.

Consolidated, Rs bn	FY23	FY22	FY21	FY20	FY19
Revenue	604.2	434.7	263.8	358.2	388.4
Net Profit	31.9	33.4	29.2	26.9	21.5
Operating Margin (%)	7.7	11.1	16.4	10.1	8.7
ROCE (%)	23.2	25.7	25.1	21.8	26.1
ROE (%)	21.8	25.2	24.9	24.3	21.8
Debt to Equity (x)	0	0	0	0	0
P/E (x)	10.3	8.5	11.5	11.1	16.9

Source: Equitymaster

Petronet presents a compelling case for explosive growth in 2024.

It boasts the largest LNG import and regasification infrastructure in India, giving it a dominant market position and operational efficiency.

The company is actively diversifying its operations beyond LNG imports, venturing into city gas distribution and renewable energy like bio-LNG. This opens new revenue streams and reduces dependence on volatile LNG prices.

Its foray into bio-LNG aligns with India's green energy push, attracting ESG-conscious investors and opening new growth avenues.

After years of strategic debt management, Petronet LNG achieved debt-free status in September 2023, boosting its financial flexibility and creditworthiness.

Its recent collaboration with global LNG players like Shell and investments in automation and data analytics will help optimize operations, enhance efficiency, and minimize costs.

Petronet LNG is a partnership between government and 4 other Maharatna Energy companies. Thus it enjoys access to virtually unlimited resources and policy tailwinds and regulatory approvals from the government.

In short, Petronet LNG is yet another way of playing the India manufacturing story through the energy source that is going to drive a lot of its growth.

In Conclusion

The 4 companies mentioned above possess potent strategic advantages.

Coupled with the tailwinds of India's booming infrastructure, rising energy demand, and government support, these stocks present compelling propositions for savvy investors.

The upcoming general elections in 2024 add a new layer of opportunities (and threats of course), as the continuity of the current government will translate to continued policy support for infrastructure development and energy sectors.

However, do note that many countries are having their elections in 2024.

Most importantly, US is also having its elections in 2024 and any adverse changes could cause severe jitters, albeit temporary, for the stock markets.

Stocks in the overvalued zone or with poor earnings could be the earliest casualties of such an election led market crash.

For more on PSU stocks, check out Rahul Shah's detailed editorial where he explains whether PSU stocks would continue their good run in 2024 or face a roadblock.

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here.