Weak market may prompt govt to defer PSU selloff

Analysts say meeting budget target will be difficult task

The government may be confident of garnering Rs 30,000 crore from divestment proceeds this year, but the weak market conditions are weighing heavily on its move to begin public offerings in several PSUs.

The recent postponement of a public offering of steelmaker Rashtriya Ispat Nigam Ltd (RINL) less than a week before it was due to open points to the lack of courage on the government’s part to kickstart the process, say analysts.

The initial public offering of RINL, the country’s fifth largest steel maker, expected to raise between Rs 900-1200 crore, was to commence last week, but it has been postponed indefinitely.

Analysts say that with less than six months remaining for the fiscal year to conclude, it will be difficult for the government to meet its budgeted target and it may meet the fate of last fiscal when targeted Rs 40,000 could not be achieved. None of the public sector companies, scheduled for divestment, have tasted the market so far in this fiscal.

Although RINL has faced temporary hurdle due to differences over valuations, market experts maintain that the government should not wait indefinitely for high valuations.

Sources in the department of disinvestment also maintain that the process should kickstart even if the prices are not very high at the moment. “This will help create a conducive environment in the market for divestment,” an official said.

Finance ministry sources also maintain that smaller PSUs should hit the market in order to create confidence in the minds of investors and attract investments in the primary markets.

The stock market has not shown any steady movement even after the announcement of reform measures by the government in the past one month. This may have been one reason for the government to hold back disinvestment, analysts feel.

Finance Minister P Chidambaram had recently expressed the hope that the government would be able to meet its divestment target this year.

Along with RINL, four other public sector undertaking — NMDC, NTPC, Power Grid Corporation and Engineers India — have been identified for divestment of government’s minority stake in them.

Increased divestment in PSUs is needed to cap the government’s burgeoning fiscal deficit.

Shortfall in achieving disinvestment targets and financing of fiscal deficit through market borrowings will punch-up yields and crowd out the private investment, maintain industry sources.