One of the key highlight of the Budget was the ambitious fiscal deficit target of around 3% of GDP by FY17. What gives the Government the confidence to achieve these targets is the big divestment program. Once again, the much exploited public sector firms are expected to bring Government's finances back in order.
There is nothing new in the new announcements of ambitious disinvestment targets. What is noteworthy is that the Government in the past has consistently failed to meet this target. However, this time, the optimism is high, backed by bullish market sentiments. The target has been set to raise amount worth Rs 584 bn in FY15, up 270% when compared to amount raised in FY14. However, despite bullish market sentiments, there are a lot of issues that could jeopardize the Government's plans. The biggest risk to the same comes from market risk. The target has been set keeping in mind the valuations that the stocks of potential disinvestment candidates have been fetching in recent times. However, in case there is a downturn, it could lead to substantial underachievement as far as funds raised are concerned. In the worst case, poor market sentiments may shelve disinvestment plans altogether.
And even if the worst does not come true, are conditions really ripe for the disinvestment plan? We don't think so. At least not from the investors' point of view. Consider this. Some of the biggest companies on the disinvestment list are still grappling with the regulatory uncertainties. A case in point is ONGC. The company has been the worst victim of regulated fuel pricing and ado subsidy sharing mechanism. Unless these issues are resolved, the real value of these companies can never be unlocked. Secondly, already four months have passed in the current fiscal year. So the Government has a window of around six - seven months to act. As an article in Business Standard suggests, raising an average of around Rs 97 bn per month will not be an easy task. That said, the road to disinvestment seems smoother than ever. Whether the Government can reach there or not is something time will tell.
Data Source: Business Standard