Long-term equity investors have earned decent returns over the past 10 years. The Sensex rose from 14,765 to 39,592 during the past decade, generating an absolute return of 168% and an annualised return of 10.37%. But people who invested in PSUs have been left disappointed.The BSE PSU Index shrank 1.21% during the past 10 years, falling from 7,923 to 7,827.The PSU index fell even as the Sensex rose 168% during the same period.Index values normalised to a base of 100. Compiled by ETIG.The loss at the index level is relatively limited because some of its constituent companies such as IOC, BPCL, Gail, among others, did reasonably well during this period, mostly because their subsidy burden got reduced due to deregulation. Defence-related stocks such as Bharat Electronics and logistic major Container Corporation also did reasonably well. However, the value destruction by others has been enormous: MMTC fell 98%, MTNL lost 92%, IOB fell 87%, IFCI shrank 85% and Hind Copper dropped 84%. The combined market capitalisation loss incurred by the top five wealth destroyers stands at around Rs 5 lakh crore.The performance of the PSUs has not been any different over the past five years as well. While the Sensex generated an absolute return of 58%—annualised gain of 9.58%—the BSE PSU Index lost 7%—annualised loss of 1.44%—over the past five years. Mutual fund investors who relied on the PSU theme have also suffered during the past five years. Though some of the PSU-themed mutual funds did better and generated positive returns during this period, these were too meagre to offer any comfort.According to most experts, piecemeal divestment by the government is primarily responsible for the poor performance of PSU stocks. Just like any other commodity, the price of a stock is also decided by demand and supply. Piecemeal divestment increases the supply on a regular basis. “The government has chosen to divest PSUs gradually. As this continued selling pressure on these counters will also remain,” says Upendra Kulkarni, Executive Director, Fortress Capital.Privatising several big companies is politically sensitive and, therefore, the government has chosen to do it by way of exchange-traded funds (ETFs). But most investors subscribe to these PSU ETFs to make a quick buck because these ETFs are offered at a discount to market prices. Since mutual funds have to sell PSU stocks to redeem its units, they end up creating more supply of the PSU stock.PSUs may remain under pressure till the govt ends piecemeal divestment.Compiled by ETIG Database.But these funds could do well over the medium term, say experts.Souce: Value Research.The delay in strategic divestment has adversely impacted the government as well. For example, MTNL used to be a strong company due to its monopoly status, but it lost out once the competition in telecom intensified. Similarly, the government could have minted a fortune had it divested BSNL or Air India before the competition nearly killed them.There is no clear strategy on the part of the owner (government) or the management and this has hurt PSU companies fundamentally. “The government has to make its strategy clear—is it putting in more money to revive the PSUs or is it looking to exit these businesses by divesting them,” says Kunj Bansal, Partner and CIO, Acepro Sarthi Group. Most PSU managements fail to do strategic planning because they comprise bureaucrats who are appointed for short periods of time.The government also tries to meet its fiscal targets by extracting high dividends or through buybacks from these companies. “These forced high dividends and buybacks create internal liquidity issues for some of the PSUs and they are not able to fund their future growth,” says Kulkarni.Experts advise that those inclined to invest and forget for decades should ignore the PSU space. “Long-term investors should keep away from PSU counters because it will be a value destroyer in the long term,” says Bansal. There are better companies investors can opt for. “While some PSU companies have reasonable decent fundamentals, there’s no need to bet on them for the long-term because there are better opportunities available elsewhere,” says Kulkarni.However, you may not avoid PSU stocks altogether. “Depending on the market situation, PSUs offer mediumterm trading opportunities that may last for 1-3 years,” says Ambareesh Baliga, an independent market analyst. The catchword here is ‘selective’. Either stick with the companies that have clear earnings visibility or those that offer deep discounts. For example, NBCC and Engineers India offer clear earnings visibility in the medium term. You may also invest in market leaders like SBI and NTPC based on current low valuations for the medium term.