Key Highlights:
- The government’s divestment plans, as outlined in the Union Budgets, have generally been ambitious and have missed their targets for five consecutive years.
- The performance of the divestment over the past few years has been impacted by financial market volatility arising from unfavourable macroeconomic conditions, procedural delays, litigations by labour unions and other interest groups, delay in demerger of non-core and land assets, and pricing issues.
- Assuming the government retains control over the company’s governance by maintaining at least a 51% stake in public firms and divests any excess shares, we estimate a total divestment potential of approximately Rs 11.5 trillion at current market capitalization.
- With a bumper dividend from the RBI, the central government’s fiscal position remains comfortable, which may limit the urgency to push hard on divestments. In case divestment lags going ahead due to headwinds, the government will continue with its focus on asset monetisation.
- We believe the government will stick to the FY25 target of miscellaneous capital receipts (which includes divestment) of Rs 500 billion.
