Thumbs down to disinvestment - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Thumbs down to disinvestment

Jun 26, 2000

The government has, as in all previous instances, scuttled the opportunity to minimize its deficit by limiting participation in commercial activities. In India it seems that 'it's the government's business to be in business'.

Rs bnBudgetedActualActual as % of
FY92 25.0 30.4 121.5%
FY93 25.0 19.6 78.4%
FY94 35.0 - 0.5 -1.4%
FY95 40.0 50.8 127.0%
FY96 70.0 3.6 5.2%
FY97 50.0 3.8 7.6%
FY98 48.0 9.1 19.0%
FY99* 50.0 58.7 117.5%
FY00 100.0 26.0 26.0%
FY01 100.0 NA
* achieved by creating cross holdings among PSUs

As is evident from the chart above, the government's measures to raise resources by divesting its holdings in public sector units (PSUs) has been a non-starter. Last week, the government came close to laying out a concrete plan for disinvestment of key PSUs. The result was, however, not totally unexpected - another meeting, another plan. However as a sweetener the government did initiate some face saving measures.

The stock market it seems had built in expectations that the disinvestment process would finally get going. The disappointment took its toll on overall market sentiment even as key PSUs tumbled from their highs. The government, in turn, witnessed erosion in the value of its holdings. In the process every one lost - the PSUs, the government, shareholders and, of course, consumers.

The situation is getting critical. The central government alone is expected to run a deficit of over Rs 1,100 bn this year. Take in the state contribution to the deficit, and you have a fiscal deficit that is nudging the 10% mark. The fiscal deficit in turn contributes to inflation, higher interest rates and, as some economists say, a current account deficit i.e. all the ills that plague the Indian economy.

It is not that there is an easy solution to eradicating the deficit. The disinvestment is only a part of it. Measures would need to be initiated to reduce government expenditure, broad base the tax net and ofcourse, invest in stepping up productivity in the country. Nevertheless, PSUs can form a significant arm of any policy to correct the deficit. Just to put the size in perspective, the capital employed in central PSUs exceeded Rs 2,230 bn (FY98).

Should investors holding PSU stock lose hope? They probably should not. Disinvestment of holdings in PSUs is the logical conclusion to the fiscal problem that plagues the country. It is also an inevitability, which may, however, take its own time to unfold.

Equitymaster requests your view! Post a comment on "Thumbs down to disinvestment". Click here!


More Views on News

6 Penny Stocks that Rallied 1,000%+ in One Year (Views On News)

Dec 6, 2021

These penny stocks shed their penny status by surging 1,000% or more in the last one year.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

ONGC to NMDC: Here are 5 Stocks Value Investors Should Closely Track (Views On News)

Nov 26, 2021

Before investing in value stocks, research the company and gain insight into why the market is discounting it.

How to Prepare for a Stockmarket Pandemic in 2022 podcast (Views On News)

Dec 6, 2021

The transition from a small correction to a market crash to a bear market may be without any warning.

SEBI Issues Operating Norms For Silver ETFs. Here is All You Should Know (Outside View)

Dec 6, 2021

SEBI has issued operating norms for Silver ETFs to ensure uniformity of the schemes.

More Views on News

Most Popular

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

6 Popular Stocks that Turned into Penny Stocks (Views On News)

Nov 27, 2021

A look at popular stocks that crashed big time and never recovered, i.e. which went from 'Multibaggers to Multibeggers'.

India's Top 5 Monopoly Stocks to Watch Out for (Views On News)

Nov 30, 2021

These 5 companies dominate their sectors with a huge piece of the pie.

5 Indian Companies Embracing Blockchain Technology (Views On News)

Nov 23, 2021

Blockchain adoption in India was slow in the past. Now, the technology is being well received.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Dec 6, 2021 03:22 PM