Govt's Massive Surge: Stake Sales via OFS Hit 11-Year High as Geopolitical Tensions Drive PSU Divestment

Govt's Massive Surge: Stake Sales via OFS Hit 11-Year High as Geopolitical Tensions Drive PSU Divestment​

Government Drives Record Fundraising Through PSU Offer-For-Sale Route​

The government has dramatically increased its fundraising efforts through the sale of stakes in listed Public Sector Undertakings (PSUs) using the offer-for-sale (OFS) route. This initiative has seen substantial traction, raising approximately ₹25,491 crore so far this year from selling interests in eight PSU companies.

This current fundraising spree marks a significant escalation compared to previous cycles. It is considerably higher than the ₹35,291 crore raised back in 2015 by stake sales across five listed entities. The OFS route has emerged as a critical mechanism for the government to shore up resources and meet fiscal targets amid mounting expenditure pressures.

Industry-Wide Fundraising Trends and Market Benchmarks​

Looking beyond PSUs, the broader market is also participating heavily in this capital infusion process. A total of 24 listed companies across both sectors have successfully raised around ₹29,445 crore through OFS this year. This figure approaches the high marked earlier in 2024 (₹30,178 crore) and remains well below the peak achieved in 2015 (₹35,566 crore).

Various PSUs involved include Bharat Heavy Electricals (BHEL), Indian Railway Finance Corporation (IRFC), Central Bank of India, Coal India, NHPC, NLC India, and General Insurance Corporation. Additionally, private sector participants like Swan Defence & Heavy Industries and HMA Agro Industries have utilized the OFS route to raise necessary funds.

Stock Performance Post-OFS Launch: A Mixed Picture Emerge​

Despite the substantial capital raised through these sales, the stock reactions for most PSU companies have remained muted since their respective OFS announcements. This stability comes amidst heightened volatility in the broader Indian equity markets. Factors such as persistent foreign institutional investor selling and elevated crude oil prices continue to weigh on market sentiment.

BHEL has stood out as a clear performer among its peers, surging 62 percent above its specified OFS floor price. However, other stocks have shown more reserved movement. IRFC is currently down 3 percent from its February OFS floor price, while Coal India and NHPC are up nearly 9 percent and 9 percent respectively since their respective May and June launches.

Expert Analysis on Arbitrage and Share Float Benefits​

Market experts note that while current trading prices for most of these companies exceed the initial OFS levels, the general pattern often sees negative market reaction leading up to an OFS launch due to concerns over additional supply.

Ajay Bagga, a market expert, elaborated that since OFS issues are commonly priced at a discount (between 3 percent and 10 percent) of the prevailing market price, it creates a defined arbitrage opportunity. This dynamic suggests that investors who sell existing holdings can then bid for shares in the OFS, creating a short-term benefit.

Strategy and Future Outlook for PSU Divestment​

Analysts highlighted a distinct front-loading trend in PSU divestment this year, with the overall fiscal target set at ₹80,000 crore. Normally, such strategic divestment activity accelerates significantly during the final quarter of the financial year, which has often resulted in targets being missed when market conditions weaken. Consequently, OFS has become the government's preferred route for fundraising resources this year.

Furthermore, experts noted that these gradual sales, typically involving small tranches of 1 percent to 2 percent, are steadily increasing the free float within these companies. A higher free float is crucial because it makes the stocks eligible for inclusion in global indices, potentially attracting long-term passive fund inflows from international investors.

Strategic Considerations and Valuation Caveats​

Deepak Jasani, an independent analyst, pointed out that the government also faces pressure to reduce its stakeholding below the mandatory 75 percent threshold in several PSUs where it currently maintains a higher holding. The resources raised early in the year are anticipated to aid in meeting high subsidy requirements related to food, fertilizer, and cooking gas.

Some experts expressed surprise at the decision to disinvest at relatively lower valuations after two years of subdued markets. They attributed this move largely to revenue shortfalls caused by the excise duty cut on crude oil and rising subsidies for fertilizers and cooking gas. It was suggested that a more prudent approach would involve establishing internal guidelines for stake sales, allowing the government to conserve stakes when market valuations are weak.