Budget 2025: Will divestment make a come back and boost PSU stocks?

Budget 2025 India: According to experts, core-sector PSUs have unlocked value and are now building further capacity.

Since 2020, actual divestment proceeds have lagged Union Budget estimates, often falling short of the target outlined. According to most experts, the upcoming budget will offer a more realistic target that can be reasonably accomplished, far lower than the targets seen in the Union Budgets presented in 2022 and 2023.

In FY25 so far, the divestment receipts touched the Rs 9,000 crore mark so far against the Rs 50,000 crore target, indicating a major shortfall, according to UBS. This included sales of the GOI’s stake in General Insurance Corporation of India, Cochin Shipyard and Hindustan Zinc through the offer for sale (OFS) route, as well as remittances from the Specified Undertaking of the Unit Trust of India.

For the upcoming Budget, analysts do not foresee a major bump in divestment targets, with most estimates falling between the Rs 30,000 crore - Rs 60,000 crore range.

“Lower disinvestment proceeds and a downward revision to nominal GDP growth will also offset the fiscal savings due to lower capex. We expect the government to maintain the current target budgeted for disinvestment,” said Japan-based brokerage Nomura Holdings.

On the flip side, UBS sees a continuation in the trend of cutting divestment targets, seeing a target of Rs 30,000 crore. If implemented, this would mark the fifth consecutive Budget to see a fall in disinvestment targets.

However, this doesn’t have much of an impact on the government’s financial standing. “Divestment proceeds’ share in overall revenue receipts has diminished over the past few years (1.6 percent in FY24-25 Budget Estimate), hence, any shortfall or outperformance here would not materially impact the government's fiscal position,” noted Barclays Research.

Also read | Union Budget 2025: Middle-class tax relief, urban growth measures hold key for FMCG stocks

How will this impact PSU stocks?

Kotak Mahindra AMC’s Managing Director Nilesh Shah said, “The budget can’t afford to deviate from the path of fiscal prudence it has charted, as conservative management of the economy has differentiated us. Divestment, including strategic divestment of non-core PSUs, will help bridge the current fiscal gap "

The big-ticket stake sales in firms like NMDC Steel, IDBI Bank, Shipping Corporation, and BMEL are likely to be pushed forward in FY26, said UBS. These stake sales will be crucial for achieving disinvestment targets in the next financial year.

Public sector undertakings in the manufacturing and infrastructure sector have seen a lot of investor interest lately, causing the market capitalization of these counters, such as NMDC Steel or Shipping Corporation of India, to skyrocket.

Earlier this month, Moneycontrol exclusively reported that due diligence was being conducted on IDBI Bank, before being shared with potential buyers to form the foundation for financial bids. Following this, the Department of Investment and Public Asset Management (DIPAM) will invite bids from interested investors for a 60.7 percent stake in IDBI Bank. However, with bids not expected before March, the divestment is likely to extend into FY26.

Even the divestment of Shipping Corporation of India (SCI) is likely to be pushed to FY26, as red-tape issues and bureaucratic delays stack up. The strategic sale of SCI, India’s largest shipping company with a fleet of 70 vessels, is part of the government’s broader disinvestment strategy.

With the growth thrust, some believe that core-sector PSUs have unlocked value and are building further capacity. The government too has slowed down on setting aggressive divestment targets.

Usually, news of divestment sends the particular PSU stocks soaring in trade, as investors believe that privatisation will ensure a focus on profits. Therefore, a lower divestment target could see some PSU stocks sulking in trade on the Budget day. Further, any market movement based on divestment news will be highly stock-specific and not impact the overall sector.

Overall, it seems like the government is reluctant to turn on the divestment tap, but instead, it's reaping the rewards from improved operations, heightened investor interest and focus towards core-PSEs. So to those hoping that their PSU holdings may see a significant jump on Budget day on disinvestment updates, it might be more prudent to look for other triggers!

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