Who will the Government of India turn to get near the divestment target in FY24?

The Government of India (GoI) has managed to raise only ₹8,000 crore via disinvestments in Coal India, Hindustan Aeronautics Ltd, HUDCO, Rail Vikas Nigam, and SJVN (formerly known as Satluj Jal Vidyut Nigam) against its FY24 budgetary target of ₹51,000 crore.

The government last achieved its divestment target in FY19 as DIPAM got a sizeable amount from its marquee Exchange Traded Funds—CPSE & Bharat 22, mobilising ₹84,972 crore against a budgetary target of ₹80,000 crore.

The GoI divestment goal banked on two large targets: NMDC Steel and IDBI Bank. And both of these faced headwinds.

The financial bids for the proposed sale of the GoI's 50.79% stake in NMDC Steel, located in Chhattisgarh, have been postponed until the state assembly elections. The government had initially anticipated a minimum of ₹11,000 crore from this asset and had announced multiple expressions of interest (EoI) for NMDC Steel. The potential bidders included Tata Steel, Jindal Steel and Power, JSW Steel, Adani Group, and even the Vedanta Group for the government's majority stake.

The GoI has cancelled the invitation process to appoint a divestment asset valuer, and the Centre will call for a fresh request for a proposal for appointing the asset valuer. Hence, the optimism that it gets divested in FY24 has been pushed back.

The GoI held a 45% stake in the lender valued at ₹29,300 crore while state insurer Life Insurance Corporation of India (LIC) holds a 49.24% stake valued at ₹32,100 crore. The two had jointly decided to sell a 60.7% stake in IDBI Bank.

Hindustan Zinc Ltd (HZL) residual stake awaits clarity from promoter ‘Vedanta’: The key issue for this delay is the possible demerger of HZL and uncertainty on demand owing to volatility in base metal prices. The GoI has a 29.54% stake, which is valued at ₹37,500 crore. Reports have suggested that the GoI has been talking about 5% OFS, which can raise approximately ₹6,400 crore at the current market price.

Life Insurance Corporation of India: The GoI holds a 96.50% stake but the stock price is 29% away from its IPO price so demand could be subdued. However, even at current prices, the government can raise approximately ₹4,000 crore for every 1%.

Will the government turn to Coal India?

The appetite for Coal India has been the highest in many years. The government holds a 63.13% stake, and even after the recent rally, valuations are supportive. At current prices, the government can mop up approximately ₹2,000 crore for every 1%.

GoI could miss on its divestment targets, but a higher dividend payout could cushion the impact on the fiscal deficit front.

However, a lower nominal gross domestic product (GDP) growth of approximately 8–9% against the budgeted 10.5% could result in lower revenue receipts owing to lower direct and indirect tax collections.

Another risk could be that the revenue expenditure could be higher than anticipated in the run-up to the state assembly and general elections.

DAM Capital assumes disinvestments of ₹20,000–25,000 crore, which would result in fiscal slippage by around 10 basis points (bps).