The government’s disinvestment programme is being hit by the slump in the stock market in recent weeks, making it difficult for the Centre to sell stakes at such low valuations. With just eight trading sessions pending till the end of the fiscal year and any decent recovery eluding the stock markets, the government looks set to miss its revised target for the year by a wide margin.
The government has revised its target down to Rs 65,000 crore from Rs 1.05 lakh crore for the current financial year. As per the latest data available with the Department of Investment and Public Asset Management (DIPAM), the government has, so far, raised Rs 34,845.06 through disinvestment. Unless the government is able to wrap up some sales in these remaining eight trading days, the Centre will face a shortfall of around Rs 30,000 crore in its disinvestment receipts.
Low valuations may force govt to postpone plans
Low valuations of stocks, along with this high volatility, means that the government will be pushed to postpone its stake sale plans until the market stabilises. One viable option, in these circumstances, could be cash-rich state-owned companies conducting a buyback of their shares. Such a market also means no private company will be able to quickly raise funds through stock markets either through initial public offering or secondary market sale.
“Given the volatility in Indian market is at its peak, it will be difficult to sell stakes even through routes such as offer for sale (OFS), which have fewer regulatory compliances and can be implemented quickly,” said a Delhi-based investment banker who has worked on government stake sale plans in the past. “In my 20-year career in the markets, I have never seen such volatility,” he said. The volatility index or Indian VIX, around 73, is within touching distance of the peak of 84 recorded in 2008, at the height of global financial crisis. During normal times, VIX is usually below 15. On February 20, for example, the VIX was at 13.
Low valuations of stocks, along with this high volatility, means that the government will be pushed to postpone its stake sale plans until the market stabilises. Sources said one viable option in these circumstances could be cash-rich state-owned companies conducting a buyback of their shares. Such a market also means no private company will be able to quickly raise funds through stock markets either through initial public offering or secondary market sale.
The Finance Ministry did not reply to queries seeking comments. Of Rs 34,845.06 raised so far this year, the government raised Rs 4,368.80 crore through a follow-on-offer of Bharat 22 ETF and another Rs 26,500.39 through more tranches of CPSE ETF. Exchange Traded Fund has been one of the main sources of fund raising for the government. Among the other stake sales this year, the Centre raised Rs 637.97 crore through the IPO of IRCTC, Rs 475.89 crore through the IPO of RVNL and Rs 730.33 crore through offer for sale of RITES shares.
For next year’s Budget, the government has announced an ambitious disinvestment agenda, aiming to raise Rs 2.1 lakh crore through stake sales, including plans to list Life Insurance Corporation (LIC) on stock exchanges and sale of government stake in IDBI Bank. Privatisation of BPCL, Container Corporation of India, Shipping Corporation of India and Air India will be other key issues next year.
In the last six years, the government has thrice missed disinvestment collection targets and thrice exceeded it. The biggest shortfall in disinvestment receipts is estimated this year — shortfall of nearly Rs 70,000 crore from the original Budget estimate of Rs 1.05 lakh crore. For three years between 2016-17 and 2018-19, the government exceeded the BE targets for disinvestment. In 2015-16, the government collected Rs 23,997 crore through disinvestment as against BE of Rs 25,313 crore. The shortfall in 2014-15 was around Rs 2,000 crore from BE of Rs 26,353 crore.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines