Overview
Following the year 2020, there is a considerable mismatch between the projected divestments and the actual divestment occurred in the budgets so far. Currently, many experts believe that this time’s budget will have a reasonable approach in terms of setting targets for divestment. This year’s budget will have smaller targets than the targets planned in the budget year 2022 and 2023. This time projection will fall in the band of about Rs. 30,000 crore to Rs. 60,000 core.

Gap in divestment target
The divestment reached to about Rs. 9,000 crore until now compared to its target of Rs. 50,000 crore in the financial year 2024-2025. It indicates a huge gap in the actual action and projected plans of divestments. The stake sales of the government of India were done through offer for sale method. It sold its stakes in Hindustan Zinc, General Insurance Corporation of India, and Cochin Shipyard. It also received money from selling its shares in different companies and investments managed by specified undertaking of Unit Trust of India.

Impact of lower target
In the Budget 2025, the projection will fall in the band of about Rs. 30,000 crore to Rs. 60,000 core. Nomura Holdings, a Japanese brokerage firm, stated that India is suffering from getting less money from sale of its stakes in the companies. Also, it is facing the issue of fall in growth of nominal GDP. This will result in cancelling out the effect of savings made by the government due to lower capital spending on its projects. Despite this, the government is anticipated to keep its present divestment goal in the budget.

In case the government of India reduces the target of divestment which could be around Rs. 30,000 crore then it will be for the fifth year in a row that the budget has contracted the goals of divestments.

The underperformance or remarkable performance of divestment will not have a big impact on India’s financial position. It is because the share of divestment in the total revenue collection has become small in the duration of previous years. In the financial year 2025, it was about 1.6 percent.

Effects on Public Sector Undertaking Stocks
Nilesh Shah, managing director of Kotak Mahindra AMC stated that the government of India should carefully plan its budget. The sale of shareholdings of the government of India in non-core public sector units will help the country to reduce the fiscal deficit.

In the upcoming financial year 2026, the major sales of companies such as IDBI bank, BEML, Shipping Corporation, and NMDC steel are expected to be undertaken. These plans of selling shares will help the government to fufil the goals of divestment set in the financial year 2026.

In recent times, many investors are showing their interest in stocks of infrastructure and manufacturing sectors undertaken by the public sector. It has resulted in a hike in market capitalization of these companies which includes Shipping Corporation of India and NMDC Steel.

The stake sales of government in IDBI bank of about 60 percent will possibly be undertaken in the financial year 2026. To conduct a financial bid of IDBI bank, a thorough review is taken of the bank and it is going to be given to potential buyers.

The sale of shares of Shipping Corporation of India is expected to happen in the upcoming financial year as well. This company is the biggest shipping firm having about 70 vessels. It is being moved forward due to administrative hurdles in the process of divestment.

One of the other reasons for lower targets is also possibly due to the belief that public sectors in key areas are expanding their potential capacity.

The announcement of the divestment process of the companies normally leads to a hike in that stock. The reason for this is that investors think that privatization of a company will lead to expansion of profit levels. In present times, small goals of divestment will possibly lead to poor performance of that public sector stocks on the day of the budget announcement. Also, the market changes due to news of divestment will affect that particular stock and not the entire sector.

In conclusion, the government of India is getting its return from strong operational activities, core public sector units, and high attraction of investors towards PSU stocks. It is unlikely for the government to do large stake sales. Thus, investors having a stake in PSU stocks possibly need to find other reasons than news of divestment for hike in prices of these stocks.