India raised ₹52,000 crore through OFS in FY27's first four months, led by LIC's 6.5% stake sale. The shift to minority stake sales changes the risk for PSU investors.
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India raised ₹52,000 crore through the offer-for-sale (OFS) route in the first four months of FY27, the best start to a fiscal year since FY20. The sum includes Life Insurance Corp.'s 6.5% stake sale that brought in ₹31,552 crore. The government's full-year target is ₹80,000 crore, stated as 'miscellaneous capital receipts' rather than an explicit disinvestment target.
The shift to minority stake sales via OFS marks a departure from the big-bang strategic sales pursued earlier. The OFS route is less cumbersome and quicker than an IPO or follow-on offering, according to reports in The Hindu BusinessLine. The LIC OFS reportedly took bankers by surprise, and catching market players off-guard can benefit valuations if the floor price is set correctly, the newspaper reported.
Besides LIC, OFSs in Coal India, Central Bank of India, NHPC, NLC, GIC, IRFC and Cochin Shipyard have collectively raised ₹20,000 crore this fiscal. The preference for OFS over IPOs or strategic sales means the government can adjust timing and size based on market conditions, reducing the risk of failed sales that plagued earlier targets.
Since 1991, disinvestment has achieved about 45% of its stated targets, with ₹6.3 lakh crore raised against ₹14 lakh crore targeted. But the rate fell sharply in FY21 and FY22, when targets of ₹2.1 lakh crore and ₹1.75 lakh crore were set, yielding only 16% and 9%, respectively. Over the five years through FY26, the average strike rate was barely 30%.
The current fiscal's performance suggests the OFS approach could improve that average. The government has not set a formal target in the Budget since FY24, instead embedding the figure in 'miscellaneous capital receipts'. This flexibility allows the government to avoid the pressure of an explicit goal while still raising funds.
The FY26 Economic Survey proposed amending the Companies Act so that a 26% stake would confer effective control, down from the current 51%. If adopted, this would reduce the government's need to sell majority stakes to transfer control, opening the door for more minority sales. The idea is to professionalise public sector enterprises through wider owner participation, the Economic Survey said.
A structural constraint remains: only about 10% of all central public sector enterprises (roughly 70 out of over 700) are listed, according to CAG reports. Listing these entities would be the first step toward accountability and would expand the pool of securities available for OFS. The government holds below 60% in many listed CPSEs, limiting the room for further creeping sales.
Gradual privatisation, the article concluded, is likely to work better for the entity and all stakeholders. The proceeds should be ploughed into capital expenditure alone, not used for revenue spending.
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