Market volatility may mar Centre’s disinvestment plans

BL Research Bureau

As they say, a week is a long time in politics. In the case of the markets, two weeks is an eternity in the stock markets. After the Finance Minister Nirmala Sitharaman announced corporate tax cuts on September 20, the benchmark indices rebounded by over 5 per cent in the next two trading sessions.

The government moved swiftly to take advantage of optimism in the stock market and reportedly, a committee of secretaries decided to divest government’s controlling 53 per cent stake in Bharat Petroleum Corp, 30 per cent stake in Container Corporation of India and complete sale of its stake in Shipping Corporation of India.

The surge in stock prices, despite any change in fundamental economic data, was cause for optimism that the government could meet its steep disinvestment target of ₹1,05,000 crore for 2019-20. Some reports claimed that the Centre could even overshoot this target like it did in 2017-18.

Stocks giving up gains

Amid this resurgent stock market, railways public sector undertaking IRCTC’s offer for sale of nearly ₹650 crore opened on September 30. This IPO has been received well by investors with the issue being oversubscribed within the first two days.

Then came a new tranche of Bharat 22 ETF through which the government hopes to raise a minimum of ₹2,000 crore. With the greenshoe to retain oversubscription of the Bharat 22 ETF up to ₹6,000 crore, the Centre hopes to raise up to ₹8,000 crore with this tranche of the ETF.

Read more:IRCTC IPO call: Green signal

However, the optimism in the stock market seems to be short lived. The past few trading sessions have seen intense volatility with the benchmark Nifty 50 and Sensex indices moving sideways. In the larger listed universe, the benchmark smallcap, and midcap indices have given up some of the gains after the corporate tax rate cut was announced

Companies where the Centre has indicated that it would strategically divest its stake or will bring down its controlling stake like in BPCL and Shipping and Container Corp, the shares continue to surge. The market capitalization of BPCL has risen over 31 per cent since news broke that Centre would divest its full stake, while those of Shipping Corporation of India and Container Corporation rose nearly 32 per cent and 15 per cent, respectively. However, market capitalization of other PSUs like Power Grid (1.6 per cent), NTPC (2.3 per cent), GAIL India (2.3 per cent) and NALCO (4.9 per cent) fell in the past two weeks.

Some estimates put the total mop-up by the Centre through strategic divestment of its stake in the three companies at nearly ₹80,000 crore.

Steep target

This could put pressure on government’s plans to raise enough resources through divestment as some of the PSU stocks are also part of the Bharat 22 ETF. Even if the government manages to sell BPCL, Shipping Corp of India, its 30 per cent stake in Container Corp, and sale of unlisted entities like THDC India and NEEPCO (North Eastern Electric Power Corp) to NTPC, overshooting the disinvestment target, which some reports put at up to ₹1,57,000 crore seems farfetched.

Read also:Govt plans to raise ₹3.25 lakh cr through disinvestment in next 5 years

Niti Aayog has been put to work to devise a strategy to boost disinvestment receipts, which according to data from DIPAM (Department of Investment and Public Asset Management) is ₹12,357 crore from disinvestments in the current financial year till now. If you add around ₹650 crore from IRCTC, this could touch ₹13,000 crore.

Whether the government manages to raise over ₹1,44,000 crore in the next six months, by forcing PSUs like NTPC to buy out its stake in NEEPCO and THDC or by selling crown jewels like BPCL is very difficult if the market takes a turn for the worst. Adding the fears of a global recession due to a manufacturing slowdown during US-China trade war, the government will have to cross its fingers that it doesn’t get singed by any blowback if the world economy goes into recession.