Budget 2025: Can Divestment Revitalize PSU Stocks? In the upcoming Budget for 2025
Budget 2025: Since 2020, actual divestment proceeds have consistently fallen short of Union Budget estimates, indicating a significant gap between targets and reality. Experts predict that the upcoming budget will set more achievable goals, deviating from the ambitious targets set in the 2022 and 2023 Union Budgets.
In the current fiscal year, divestment receipts have only reached Rs 9,000 crore out of the Rs 50,000 crore target, highlighting a substantial shortfall, as reported by UBS. This includes the sale of the GOI’s stake in General Insurance Corporation of India, Cochin Shipyard, and Hindustan Zinc through the offer for sale (OFS) route, along with remittances from the Specified Undertaking of the Unit Trust of India.
Analysts anticipate that the upcoming Budget will maintain divestment targets within the range of Rs 30,000 crore to Rs 60,000 crore, reflecting a cautious approach. Nomura Holdings, a brokerage firm based in Japan, expects the government to stick to the current disinvestment target, considering lower disinvestment proceeds and a downward revision to nominal GDP growth.
Conversely, UBS foresees a continued trend of reducing divestment targets, proposing a target of Rs 30,000 crore for the upcoming Budget. If this target is met, it would mark the fifth consecutive Budget with a decrease in disinvestment targets.
Despite these adjustments, the impact on the government’s financial position is expected to be minimal. Barclays Research notes that the share of divestment proceeds in overall revenue receipts has decreased over the years, indicating that any shortfall or outperformance in this area would not significantly affect the government’s fiscal position.
How will the PSU stocks be impacted by these developments?
Nilesh Shah, the Managing Director of Kotak Mahindra AMC, emphasized the importance of maintaining fiscal prudence in the budget. He highlighted the significance of conservative economic management in setting India apart. Shah also pointed out that divestment, particularly the strategic divestment of non-core PSUs, will play a crucial role in bridging the current fiscal gap.
According to UBS, major stake sales in companies like NMDC Steel, IDBI Bank, Shipping Corporation, and BMEL are expected to be delayed until FY26. These sales are essential for meeting disinvestment targets in the upcoming financial year.
Investor interest in public sector undertakings in the manufacturing and infrastructure sectors has been on the rise. This surge in interest has led to a significant increase in the market capitalization of companies like NMDC Steel and Shipping Corporation of India.
Recent reports from Moneycontrol revealed that due diligence is underway for IDBI Bank, with the findings set to be shared with potential buyers to facilitate financial bids. The Department of Investment and Public Asset Management (DIPAM) will then invite bids for a 60.7 percent stake in IDBI Bank. However, the bidding process is not expected to conclude before March, potentially extending the divestment process into FY26.
Similarly, the divestment of Shipping Corporation of India (SCI) is also likely to be delayed until FY26 due to bureaucratic hurdles and red-tape issues. The strategic sale of SCI, India’s largest shipping company with a fleet of 70 vessels, is a key component of the government’s broader disinvestment strategy.
With the recent growth surge, many believe that core-sector Public Sector Undertakings (PSUs) have unlocked value and are expanding their capacity. The government has also slowed down on setting aggressive divestment targets.
Typically, news of divestment causes the stocks of specific PSUs to rise in trading, as investors anticipate that privatization will lead to a focus on profitability. Therefore, a lower divestment target could result in some PSU stocks underperforming on Budget day. It is important to note that any market movement driven by divestment news will be specific to individual stocks and will not have a significant impact on the sector as a whole.
In general, it appears that the government is hesitant to increase divestment efforts, instead benefiting from improved operations, increased investor interest, and a focus on core PSUs. For those expecting a significant increase in their PSU investments on Budget day due to disinvestment updates, it may be wiser to consider other factors that could trigger market movement.
For more market insights, follow our blog.
Stay tuned for more updates and insights on the stock market! For more insights on investing in the Indian stock market, check out resource like ET, NSE India.
Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.