Budget 2014: Jaitley May Announce Big Divestment Target

Expectations are rising that Finance Minister Arun Jaitley could substantially raise the target from the stake sale in public sector units. In the interim budget for 2014-15, his predecessor, P. Chidambaram, had estimated to realise from Rs 36,925 crore from divestment.

Mr Jaitley has some favourable circumstances going into the budget which will be presented on July 10. The stocks markets have broken records this year, enthusiasm in PSU stocks has risen substantially and global investor interest in Indian stock markets has gone up after strong electoral verdict in favour of the Narendra Modi government.

In budget, "we have may see a big divestment number," said A Balasubramanian, CEO, Birla Sun Life AMC. Mr Jaitley's divestment push could also get a boost after capital market regulator (Sebi) said the government should dilute its stake in listed public-sector companies over the next three years and cap it at 75 per cent, a recommendation that could lead to at least Rs 60,000 crore worth of share sales. (Watch Video)

Shares of public sector companies have outperformed the broader markets by a big margin after the Modi government was voted into power. The BSE PSU index has gone up by nearly 12 per cent since May 16 as compared to a 4 per cent rise in Nifty. This outperformance could whet the appetite of investors in PSU shares. "The market appetite is pretty large. In the last six months the experience for investors in divestment has been good. They made good money on Indian Oil, Engineers India and Central Public Sector Enterprise (CPSE) ETF," said Mr Balasubramanian.

The CPSE exchange-traded fund (ETF), which invests in 10 central public sector enterprises, has rewarded investors handsomely, gaining nearly 60 per cent since its April 4 listing.

Analysts are also hopeful that the Modi government will take steps to boost the productivity in public sector units. This could further stoke interest in PSU stocks. "In general, there have been expectations that the efficiency levels of public sector will go up in the best interests of the shareholders, government and for supporting the economic growth," said Mr Balasubramanian.

The CEO of Birla Sun Life AMC also expects that Mr Jaitley would incentivise investment in stock markets by increasing Section 80C benefits to Rs 2 lakh from Rs 1 lakh. "There is high probability that 80C limit may get hiked to Rs 2 lakh to incentivise investment equity, or equity mutual funds or insurance products. India needs large pools of money in capital market. Just 5 per cent of the total savings in our country goes into equity," said Mr Balasubramanian.

Finance Minister Arun Jaitley's efforts for higher divestment proceeds could also get a boost if more retirement and gratuity funds are allowed to invest in stock markets. The Finance Ministry has proposed allowing retirement and gratuity funds to invest up to 30 per cent of their money in the equity markets.

Currently, the Employees' Provident Fund Organisation (EPFO) is allowed to invest up to 5 per cent in money market instruments, including equity-linked schemes of mutual funds regulated by the Securities and Exchange Board of India (Sebi). However, the provident fund body, which manages over Rs 5 lakh crore, is yet to invest in the stock market.