Global liquidity may aid India’s ambitious divestment target

As global financial markets have seen a flight to safety by the investors, India is banking on the excess global liquidity to meet its over-ambitious divestment targets at a time when the government revenues are likely to contract due to global recession.

Analysts and official sources in the know told DH, that “the part of the global liquidity surge will come this way and may be interested in PSUs.” As investors and fund houses are piling up on cash amid the recession, the global liquidity surplus is highest in at least a decade.

Going by the returns given by the public sector enterprises and the prevailing market conditioning, in normal circumstances, they wouldn’t have garnered much interest from investors, according to analysts.

The data available with the Bombay Stock Exchange shows that the PSU Index has seen a terrible erosion in the investor’s wealth in the past one year when the country first was grappling with the prolonged slowdown, and then the coronavirus pandemic.

The collapse of the BSE PSU Index has been twice as much as BSE Sensex -- PSU Index fell by 46% in one year, compared with just a 22% crash in the BSE Sensex.

The primary reason behind this steeper decline has been a constant fall in the PSU earning, especially since March 2018.

Despite falling short of actual divestment target in 2019-20 by 38%, the government has almost tripled the divestment target for the current financial year to Rs 2.1 lakh crore (BE) from Rs 65,000 crore (actuals) in 2019-20.

Over and above Rs 65,000 crore through divestments, PSUs contributed to the Centre’s revenues by Rs 48,000 crore through dividends. This year, the Centre has pegged Rs 65,747 crore worth of collection from PSU dividends, growing of 36% over 2019-20 -- a target that might seem difficult to achieve due to the ongoing recession in the economy.

Also garnering response to the divestment would be sector-specific. “It’s not a blanket problem. Defense PSUs are likely to sail through,” an analyst said. However, sectors like energy are likely to see a muted response by the investors.

“Most of the Indian government’s disinvestment target capture proceeds from stake sale of LIC which is unlisted. Valuation and pricing of LIC are going to be driven but by substantially different factors and will have little co-relation with the earnings or performance of the BSE PSU Index,” Jimeet Modi of Samco Securities said.