The government has raised around Rs 25,491 crore so far this year by selling stakes in eight listed PSUs through the OFS route, marking its biggest such fundraising since 2015, when it had raised about Rs 35,291 crore through stake sales in five listed companies.
Including private sector issuances, 24 listed companies have together raised around Rs 29,445 crore through OFS this year, just short of the 2024 high of Rs 30,178 crore raised by 28 companies and the 2015 peak of Rs 35,566 crore raised by 19 firms, according to data from Prime Database.Among PSU companies, stake sales have been carried out in Bharat Heavy Electricals (BHEL), Indian Railway Finance Corporation (IRFC), Central Bank of India, Coal India, NHPC, NLC India and General Insurance Corporation. On the private sector side, East India Drums & Barrels, Eastern Silk Industries, Swan Defence & Heavy Industries, HMA Agro Industries and String Metaverse have also tapped the OFS route to raise funds.
These PSU stocks have largely seen a muted reaction since their respective OFS launches, even as Indian equity markets have witnessed sharp volatility amid continued foreign institutional investor selling, geopolitical tensions and elevated crude oil prices. BHEL has been the standout performer, surging 62 percent above its OFS floor price, while the rest of the pack has posted far more modest moves. IRFC is down 3 percent from its February OFS floor price, Central Bank of India has gained 6 percent since its May OFS, Coal India is up nearly 9 percent from its May OFS floor price, NHPC has risen 9 percent from its June OFS floor price, NLC India is up just 1 percent, and General Insurance Corporation of India has gained 4 percent from its mid-June OFS floor price.Experts note that while current stock prices for most of these counters are trading above their OFS levels, the more typical pattern is for stock prices to react negatively in the run-up to an OFS, as the market braces for the additional supply.Ajay Bagga, market expert, explained that since OFS issues are typically priced at a 3 percent to 10 percent discount to the prevailing market price, an arbitrage opportunity opens up for investors, who sell existing holdings and bid for shares in the OFS instead. This dynamic, he said, is largely a short-term phenomenon, but existing shareholders effectively get diluted at a discount, prompting institutional money to exit such counters before looking to re-enter at lower levels.Experts also pointed to a clear front-loading of PSU divestment this year, with the overall target for the fiscal pegged at Rs 80,000 crore. Divestment activity typically gathers pace in the last quarter of the fiscal year, and targets have often been missed in recent years when market conditions turned unfavourable. With strategic divestment largely on the back burner, OFS has emerged as the government's preferred route to raise resources, helped in some cases by support from other PSU companies.Analysts also pointed out that by offloading tiny tranches of typically 1 percent to 2 percent at a time, as seen in the Coal India and IRFC deals, the government is steadily increasing the free float, or shares available for public trading, in these companies. A higher free float makes these stocks eligible for inclusion in global indices, which in turn could draw long-term passive fund inflows from foreign investors.Deepak Jasani, independent analyst, said the government is also under pressure to bring its shareholding below the mandated 75 percent threshold in several PSUs, where its stake still remains above that mark. The additional resources raised early in the year are expected to help meet higher subsidy requirements on food, fertiliser and cooking gas.Some experts flagged it as somewhat surprising that the government has chosen to disinvest at relatively lower valuations after two years of subdued markets, attributing the move largely to a revenue shortfall stemming from the excise duty cut on crude oil and surging fertiliser and cooking gas subsidies. They noted the absence of a methodical, formula-based approach to PSU stake sales, and suggested it would be more prudent for the government to frame internal guidelines that trigger sales when valuations are elevated and conserve stakes when valuations are weak.Bagga added that defence sector valuations, for instance, remain elevated and present a good opportunity for stake sales, while PSU banks, which have shown a strong turnaround in profitability, offer scope for the government to retain a controlling stake while gradually selling down the rest over time.Source:Network18
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