By Ruma Dubey

The first PSU to divest stake, place its Offer for Sale (OFS) is about to take off. SAIL, the first PSU stock on sale from the rack of others, is down in the red, with markets apprehensive about a discounted price for the OFS. As such retail investors are being offered shares at a 5% discount but thankfully, there is no discount for the institutional investors. Govt of India holds 80% stake in SAIL.

Next on the block is ONGC which is also expected to offer 5% stake, followed by monopoly coal producer, Coal India, which will offer 10% stake. NHPC has also got the approval and an OFS to sell 11.36% stake is on the cards.

Currently, it looks like the entire onus of achieving this target lay on divestment as tax targets have gone a bit askew – indirect tax revenue for 5 months period, from April to August’14 rose by just 4.5% while the target for the entire 12 months is 25%. The full year tax revenue target is Rs.9.77 lakh crore and of this, Rs.3.23 lakh crore or 33% was collected in first half; in the second half, taxes have to rake in 67% or Rs.6.54 lakh crore. Now one gets the point of why divestment is imperative.

The Govt really needs to hurry with the stake sales and raise the money as there are just four months for FY15 to end. One OFS per month? Arun Jaitley, during his maiden Budget, set himself a tall target of Rs.58,425 crore – the precise money to be raised through divestment and this is necessary to bring down the fiscal deficit from 4.5% in FY14 to 4.1% in FY15.  Of this divestment target, 74% or Rs.43,425 crore is expected to come from stake sale in SAIL, ONGC, NHPC and CIL. At the current market price, this does not seem impossible.

Balance of the Rs.58,425 crore divestment target, 26% or Rs.15,000 crore is expected to come from stake sale in non-Govt companies – 29.54% stake sale in Hindustan Zinc and 49% in unlisted Balco. The Govt has got approvals for stake sale in both but Hind Zinc alone can fetch the company more than its target at current market price.

Ideally, in the current bull run on the bourses, achieving this target should not be tough. But then we do not live in an ideal world. Past track record of PSU divestments have been dismal with the Govt missing the target for five consecutive years. One can say that things have changed this year – new Govt, new optimism, strong markets and new appetite for PSU stocks. If the OFSs are priced right and marketed right, maybe we might end up saying that after five consecutive years of missing targets, the PSU divestment target was finally met this fiscal.

And we are hoping that issues ‘really’ get subscribed and not by calling in the regular knight in shining armor – LIC. The insurance behemoth has time and again bailed out poorly managed PSU OFS’s and despite that, targets have been missed. Let’s see if this fiscal, the optimism on the trading floors and with investors across India for the Modi Govt, translates into subscription for these four OFSs. Or else, we can say that optimism was just on the surface; deep underneath, the same unease and uncertainty remains.