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Proceeds from LIC’s IPO account for more than half of the divestments made so far in FY23. What to Expect in the 2023 Budget?

The government is expected to be highly unlikely to meet its FY23 divestment target. In the current fiscal year, the previous divestment proceeds from the center have expired 31,100 crore, which is almost 48% of the budgeted target. Proceeds from the IPO of India’s largest insurer, LIC, account for more than half of the divestments made to date. In the 2023 budget, the divestment target will likely remain modest or unchanged from the previous one.

Data from DIPAM showed that CPSE’s divestitures in fiscal year 23 to date amounted to 31,106.64 crore — that would be 47.85% of the budgeted estimates of 65,000 crore for FY 23.

According to the data, strategic sale of LIC through an initial public offering (IPO), the proceeds amounted to around 20,516.12 crore — for 65.95% of the divestment proceeds generated by the government so far in FY23. LIC’s IPO is the largest ever in the Indian market. LIC’s public offering opened on May 4th and closed on May 9th last year. The IPO drew 2.95 times in the last day, with healthy demand from all investor categories.

Among other important notable divestments were — 3,839 crore derived from a sale of shares in Axis Bank via SUUTI, 3,026.23 crore and 2,723.73 crore in ONGC and IRCTC through an Offer to Sell (OFS). Also divestment receipts from 497.27 million and 471.5 crore came from part of the equity sales to GAIL (India) and Paradeep Phosphates.

Yes Bank economists said in their report: “Divestments in PSU companies were expected 650 billion in FY23BE. To date, the government has collected 311 billion or 48% of its target. More than half of the divestment proceeds to date have come from LIC’s IPO, in which the government raised INR 210 billion through the sale of a 3.5 percent stake in LIC.”

For the full fiscal year 2022-23, economists at Yes Bank expect the government to generate divestment proceeds of 40,000 crores. However, they believe that the government will once again draw a pencil Divestment target of 65,000 crore also in FY24. Therefore no change from previous budget.

Also, Axis Securities said in its note, “FY23 divestment receipts are expected to be lower than BE and based on track record over the past few years.” But the brokerage expects FY24 divestment estimates to be likely will be modest.

According to Yes Bank economists, the focus for FY24 will be on completing the divestment process already approved by Cabinet, including IDBI Bank, ConCor, BEML, Shipping Corporation of India, NMDC Steel, HLL Lifecare and PDIL.

Overall, economists said, this budget would have the daunting task of working toward consolidation after the Covid-related fiscal boost. On the other hand, economic growth needs to be monitored in an atmosphere of slowing global growth and tightening domestic financing conditions. At the strategic level, the comprehensive reform process should continue with earmarked spending on rural development, boosting production, job creation and capacity building through infrastructure.

Finance Minister Nirmala Sitharaman will present the union budget for years 23-24 on February 1 and it would be the last budget for the full year before the 2024 union elections.

Although this is the last budget before the general election, the economists said: “We don’t expect much in terms of tax breaks for the masses. For FY24E we expect the budget deficit to increase 17.8 trillion GFD/GDP to be at 5.9% (after hitting the 6.4% target for FY23BE). Net and gross borrowing are expected to increase in FY24E 11.7 trillion and 15.4 trillion or Although the RBI is on pause after another 25 basis point hike in February 2023, we see scope for yields to rise in H1 FY24 towards 7.60-7.75% as the center targets for the early borrowing in the first half.”

Disclaimer: The views and recommendations made above are those of individual analysts or brokerage firms and not Mint.

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