DIVESTITURE PLAN OF

INDIAN GOVERNMENT
 Selling or liquidating an asset or subsidiary in a strategic sale in order to realize some or whole part of the holding; results in
reducing one’s stake into some organization.

Why Divestment: Current Scenario Past Divestments

Rs 2 lakh crores locked up in the PSUs
NALCO
• Financing the increasing fiscal deficit • Revenues were flat at 4% CAGR
• Financing large-scale infrastructural development • Divestment in 2018
• For investing in the economy to encourage spending • 19%: improvement in operational
• For retiring Government debt- Almost 40-45% of the performance and higher profits
Centre’s revenue receipts go
• towards repaying public debt/interest Engineer’s India
• For social programs like health and education • Falling revenues at -7.80% CAGR
• Divestment in 2016
Increased divestment target to Rs. 1 lakh crore from 24 • 29.35%: strong order book growth
PSUs
Due to GST collection shortfall to contain fiscal deficit at
3.3% of GDP in FY20 IOCL
• Revenues at 0.48% CAGR
• Divestment in 2016
• Revenues grew at 16.62% CAGR
• Stock price delivered 16.30% CAGR
Will it be beneficial to the PSUs and its investors?
• Past history indicates that with lesser interference from
the government, the PSUs perform better.
• Government continues to maintain its controlling stake.
This means that the government will keep on having an
impact on these companies, directly or indirectly.
• Out of 11 PSUs lined up for divestments, there are few
companies where the government will sell most of its
investments; government will become a minority
shareholder
• Companies with good fundamentals and a minority
shareholding of the government will boost working of few
companies
• More and more retail participation would drive the share
prices backed by good operational performance and
profitability.

Bottom Line:
• In FY20, the government is to meet the budgetary shortage which is anticipated due to the recent tax exemption announcement.
• Investors need to choose companies with good operations and a strong management who can efficiently utilize the company’s
resources in order to increase the profitability. This would ultimately reward the investors of the company and hence improve the
sentiment of PSU investing.
• Keeping a track on the order book, the operational movements and management commentary regarding the companies will be an
essential part in selecting and investing in the divested PSEs.