Disinvestment Trends in FY25: Government’s Stake Sales at a Decade-Low

The Indian government’s disinvestment receipts for the financial year 2024-25 (FY25) are poised to be the lowest since the Narendra Modi administration took office in 2014-15. As of now, the government has accrued ₹9,319.05 crore through minority stake sales, a significant drop compared to ₹16,507.29 crore collected in FY24. With only a short time left in the financial year, the total receipts are expected to remain below the ₹13,534.4 crore collected in FY22.

Shift from Disinvestment Targets to Value Creation

In a policy shift, the government ceased setting fixed disinvestment targets from FY24 onwards. Following the presentation of the full Budget for FY25, former Department of Investment and Public Asset Management (DIPAM) secretary Tuhin Kanta Pandey emphasised a change in approach towards “value creation.” Rather than focusing purely on stake sales, the government now prioritises optimising the performance of public sector enterprises (PSEs) through higher capital expenditure, increased dividends, selective market dilution, and privatisation where feasible.

Modes of Disinvestment

The government employs 2 primary methods of disinvestment:

1. Minority stake sales: The sale of a limited percentage of government-owned shares in public sector companies.
2. Strategic disinvestment: The transfer of a substantial stake or full ownership of a central public sector enterprise (CPSE), along with management control.

Key Disinvestment Transactions in FY25

Despite the lower overall receipts, some significant disinvestment activities have taken place this year:

• General Insurance Corporation of India: The government sold 3.39% of its shares through an offer for sale (OFS), raising ₹2,345.55 crore.
• Cochin Shipyard: A 4.95% stake sale via OFS generated ₹2,015.32 crore.
• Hindustan Zinc: The government divested 1.62% of its shares through OFS, yielding ₹3,449.18 crore.
• Specified Undertaking of the Unit Trust of India (SUUTI): The government accounted for ₹1,509 crore in remittances under disinvestment receipts.
• Ferro Scrap Nigam: A 100% sale of this MSTC subsidiary to Konoike Transport Co. for an equity value of ₹320 crore was agreed upon, though the transaction is yet to be finalised.

Status of Strategic Disinvestment Cases

A government reply in the Lok Sabha in December 2023 outlined the progress of 33 strategic disinvestment cases under DIPAM:

• Completed Transactions: 10 cases, including eight CPSE-to-CPSE deals, and the privatisation of Air India and Neelachal Ispat Nigam.
• Pending Transactions:
  • 5 PSEs under consideration for closure.
  • 1 case stalled due to litigation.
  • 1 case under the corporate insolvency resolution process.
  • 2 transactions found unfeasible.
• Ongoing Disinvestment:
  • 14 transactions are still in progress.
  • 6 PSEs have not received an Expression of Interest (EoI) or had their transactions called off.
  • 8 transactions remain at various stages of the strategic disinvestment process.

Conclusion

The government’s disinvestment strategy has undergone a transformation, with a focus on long-term value creation rather than aggressive stake sales. As strategic disinvestment remains a work in progress, the success of this approach will depend on the efficient performance of PSEs and market conditions.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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