Mazagon Dock Shipbuilders Ltd (MDL), IRFC Ltd, IDBI Bank Ltd, Shipping Corporation of India (SCI), NFL Ltd, and Rashtriya Chemicals & Fertilizers Ltd (RCF) are among the divestment candidates in focus today as Finance Minister Nirmala Sitharaman is set to unveil the disinvestment target for FY25. In the interim Budget 2025, the FM set the divestment target at Rs 50,000 crore.
“An unchanged target is likely, as the government has only around eight months to achieve it,” said Kotak Institutional Equities. Given the buoyancy in the markets and the demand for PSU companies, especially in the secondary markets, the government should be aggressive in stake sales even though outright strategic sales or privatizations may not be politically palatable, Kotak added.
Apurva Sheth, Head of Research at SAMCO Securities, noted that the government might refrain from announcing a new target and focus on existing divestment candidates like Bank of Maharashtra (BoM), IDBI Bank, and SCI, as well as selling more stake in LIC of India through an FPO. “Stocks’ reaction to divestment announcements will depend on various factors like issue size, price, market conditions, and sentiment,” he said in a BT Markets survey.
In FY24, the government missed its divestment target for the fifth consecutive year, raising only around Rs 10,000 crore against a target of Rs 51,000 crore. This led to a revised target of Rs 30,000 crore for FY24 and Rs 50,000 crore for FY25. Despite the challenges, Emkay Global stated that the Centre is unlikely to cut the target.
The government has previously announced the privatization of BPCL, Concor, and SCI but has yet to privatize any government company. The New Public Sector Enterprise Policy of February 2021 categorized several sectors as strategic, intending to retain one or more PSUs in these sectors, analysts noted.
Recent media reports hinted at the government’s intent to sell small stakes in MDL, IRFC, NFL, and RCF. Gaurang Shah of Geojit Financial Services emphasized the need to address the issue of low market float for government-owned companies. “Unless and until the government decides and implements the divestment procedure at ground level, the float cannot increase,” he said.
The government consolidated 27 PSU banks into 12 between FY2017-19 to improve their market positions and reduced stakes in several CPSEs via ETFs and mergers, such as HPCL being acquired by ONGC.
“Start with a small portion of divestment, see how the interest begins. I’m quite sure that these companies, given their track record for long-term investors, will generate high interest from retail participation,” Shah said in a note on June 28.
Manish Chowdhury, Head of Research at StoxBox, said considering robust tax collections and the challenges involved in smoothly divesting stakes in government entities, he does not expect an ambitious divestment target from the government in this Budget.
