The Change

The Centre has increased its target of raising funds by disinvestment to Rs 1,05,000 crore in the Budget of 2019-20, up from Rs 90,000 crore in the interim budget in February.

In her Budget speech, Nirmala Sitharaman has proposed a further consolidation of the Centre’s holdings in PSUs, both in the financial and non-financial sectors. She has also proposed bringing down the government’s stake in CPSEs below 51 per cent on a case-by-case basis.

New tools

From 2009-2010, the total disinvestment proceeds have touched over Rs 3,80,000 crore, with nearly Rs 2,80,000 crore coming from Narendra Modi’s first term from FY15 to FY19.

The Centre had struggled to meet its disinvestment targets in earlier years. However, in 2017-18, by making ONGC acquire its stake in HPCL, the Centre managed to overshoot its disinvestment target of Rs 72,500 crore, and collected over Rs 1,00,000 crore from disinvestment proceeds. It again used the Power Finance Corp and REC Ltd’s Rs 14,500-crore merger to meet its Rs 80,000-crore target in 2018-19.

In the past five years, the Centre has used tools like exchange traded funds to sell its stake in PSUs. It had to use this new method of selling its stake in PSUs, which were packaged with shares it held in blue chip companies like Larsen & Toubro, Axis Bank and ITC, to make sure that the disinvestment targets were met. There are two ETFs that are currently trading — the CPSE ETF and the Bharat 22 ETF. The Centre has also resorted to giving a 5 per cent discount on the issue price to lure retail investors.

Now, the Centre hopes that by offering tax deductions to retail investors in instruments such as CPSE ETF akin to the tax benefits for equity-linked savings schemes of mutual funds, it could boost retail participation.

Investors out in the lurch

Retail investors have not made any money in shares of companies that the Centre has offloaded stakes in over the last 10 years. If financial services companies are excluded, most companies in the S&P BSE PSU Index have delivered paltry returns to investors. Only those who operate in near monopoly businesses like Power Grid and oil marketing companies like BPCL or IOC have managed to give good returns to investors. And in case of oil marketing companies, only after the prices of fuel was decontrolled did investors make any money.

Unless there is a natural monopoly, it doesn’t make sense for retail investors to dive right into a share issue that the government is using to shore up its budget math. It’s best to wait and watch what happens with these companies’ businesses, and their governance.

Three takeaways

Aiming for higher retail participation in disinvestment

Tax benefits proposed for CPSE ETF

Higher and ambitious FY20 disinvestment target

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