Strong government divestments could ease valuation pressures, support fiscal consolidation: Axis Capital

According to a Axis Capital report on Saturday strong government disinvestments could expand the domestic equity markets investable universe ease valuation pressures and support fiscal consolidation amid mounting fiscal risks reported news agency IANSThe report said the governmentrsquos holdings in listed companies have grown to around Rs 44 lakh crore nearly four times the level seen before COVID19 A steady divestment programme could help the government generate significant revenue while increasing the number of shares available for public trading supporting fiscal consolidation and improving capital flows it saidA large portion of the governmentrsquos listed investments is concentrated in banks and nonbanking financial companies NBFCs If the government reduces its ownership in these companies by 15 per cent over the next three years it could raise nearly Rs 66 trillion the report estimated Such sales could also increase market liquidity and lower the risk of money flowing out of the domestic equities it notedFII outflowsAccelerated divestments could help narrow the demandsupply imbalance reduce pressure for foreign investor exits and address the marketrsquos underlying plumbing problem of excess demand for equities it saidIndia has seen significant capital outflows over the past two years even though the emergingmarket EM benchmark index has outperformed the US market over the last 18 months Taiwan and South Korea which have benefited strongly from the artificial intelligence AI boom have also recently witnessed large outflowsThe report said foreign investors have offloading their stake in India due to high valuations and lowerthanexpected corporate earnings over an extended period Besides domestic investors provided the cushion by absorbing shares sold by foreign portfolio investors FPIs in the secondary market even at relatively high valuationsHowever the report cautioned that fiscal pressures could remain high in FY28 as the government implements the 8th Pay Commission In such a situation divestment could provide a more sustainable way to raise funds it pointed outAssuming a 12 per cent growth rate for income tax compared to the implied rate of 18 per cent leads to a shortfall of Rs 762 billion Meanwhile higher subsidy spending adds to fiscal pressuresrdquo the report addedGovernment achieves over 78 per cent of disinvestment and asset monetisation targetIndian government has raised 62124 crore this year through disinvestment and asset monetisation so far achieving about 78 per cent of the FY27 target within five monthsThe Centres FY27 budgeted disinvestment estimate and asset monetisation target is Rs 80000 crore and it has mopped up Rs 55757 crore so far this fiscal through divestment in public sector undertaking PSUGovernment offloads stake in nine PSUsThe government sold minority stake in nine PSUs which includes the highvalue entities such as LIC and Coal India as well as through strategic sale of Indian Medicines Pharmaceuticals Corporation and remittances from SUUTIStaterun insurance major Life Insurance Corporation of India LIC accounted for more than half of the disinvestment proceeds The government had garnered Rs 31515 crore by offloading 65 per cent stake in the company Besides Coal Indias 2 per cent share mopped up Rs 5542 crore while its 601 per cent stake dilution in NHPC secured Rs 4357 crore to the exchequer It divested 6 per cent stake in Hindustan Copper to raise Rs 3041 croreCentral Bank of India coal mining firm NLC India General Insurance Corporation of India GIC Indian Railway Finance Corporation IRFC and Cochin Shipyard are some of the other PSUs in which the government has disinvested its stakeBesides it raised Rs 6367 crore through asset monetisation via infrastructure investment trusts InvITMore stake sale on the cardsThe government is also mulling a strategic sale in IDBI Bank It has received revised bids from Dubaibased Emirates NDB and Prem Watsaled Fairfax Financial Holdings after a failed attempt earlier this yearAmid concerns over expenditure exceeding the budget estimates due to higher energy and fertiliser import bills the government is accelerating the drive for miscellaneous capital receipts or disinvestment and asset monetisation in the current fiscalThe fiscal deficit target for FY27 is at 43 per centWith inputs from IANS