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 divestment candidates that are in focus today, as the Finance Minister Nirmala Sitharaman looks set to unveil disinvestment target for FY25 today. The FM had in her interim Budget 2025 set the divestment target at Rs 50,000 crore.
"Unchanged target 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, at least in the secondary markets, the government should be aggressive in stake sales even though outright strategic sales/privatizations may not be politically palatable, Kotak said.
Apurva Sheth, Head of Research at SAMCO Securities said the government may refrain from announcing any target this time and will set its sights on due divestment candidates like Bank of Maharashtra (BoM), IDBI Bank, SCI and selling some more stake in LIC of India through FPO. "Stocks’ reaction to divestment announcements will depend on various factors like issue size, price, market condition and sentiment," he said in a BT Markets survey .
In FY24, the government missed its divestment target for the fifth consecutive year in FY24. Against a divestment target of Rs 51,000 crore for FY24, it was only able to raise around Rs 10,000 crore, achieving just 20 percent of the original target. This led the government to cut the FY24 target at Rs 30,000 crore, and FY25 target at Rs 50,000 crore.
Divestment remains a tricky subject, the Centre is unlikely to cut the target, Emkay Global said.
The government in the past announced privatisation of BPCL, Concor and SCI but has not privatised any government company as yet. The New Public Sector Enterprise Policy of February 2021 has categorised several sectors as strategic with the intent to retain one or more PSUs in strategic sectorsm, analysts noted.
A recent media report hinted at the government's intent to sell small stake in MDL, IRFC, NFL & RCF. Gaurang Shah of Geojit Financial Services recently suggested that some of the government-owned companies need to address the issue primarily because the float available in the market is very low.
"Unless and until the government decides and implements divestment procedure at ground level, the float cannot increase. In the past we've seen companies’ like HAL and Cochin Shipyard go through a split of face value from Rs 10 to Rs 5. There needs to be further consensus on this and decisiveness," he said.
The government consolidated 27 PSU banks into 12 PSU banks over FY2017-19 to improve their market positions. It reduced stakes in several CPSEs via ETFs as well as through 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, the way they have created the returns for long-term investors over the last maybe one year, two years, and three years. The momentum is going to be very high in terms of interest from retail participation, Shah said in a note on June 28.
Manish Chowdhury, Head of Research at StoxBox said considering robust tax collections at the centre and challenges involved in smoothly divesting stake in government entities, he does not expect an ambitious divestment target from the government in this Budget.