Centre Raises ₹20,274 Crore Through PSU Divestment in FY27; IDBI Bank and LIC Could Become Next Big Strategic Sales

The central government has intensified its public sector undertaking (PSU) divestment programme, with proceeds from stake sales reaching a four-year high in the ongoing financial year as authorities look to strengthen non-tax revenue sources amid rising fiscal pressures.

The government has already mobilised ₹20,274 crore through PSU divestment in FY27, marking the highest collection since FY23, when stake sales generated ₹35,294 crore.

The accelerated pace of divestment comes at a time when the government is facing challenges including higher subsidy expenditure, uncertain tax revenue growth and rising costs linked to global geopolitical disruptions.

FY27 Divestment Momentum Surpasses Previous Years

The government’s divestment receipts have improved significantly compared with recent financial years.

PSU Divestment Receipts

The current proceeds represent around:

31% of the ₹80,000 crore full-year divestment target

within the first quarter itself.

The strong beginning indicates that the government is actively pushing ahead with its asset monetisation strategy.

Seven PSUs Already Witness Stake Sale Activity

The government has initiated offer-for-sale (OFS) transactions in several public sector companies during FY27.

The companies include:

• Central Bank of India

• Coal India

• NHPC

• NLC India

• General Insurance Corporation

• IRFC

• Cochin Shipyard

Through OFS transactions, the government reduces its ownership while allowing institutional and retail investors to participate in PSU companies.

Why Has the Government Increased Divestment Activity?

The faster pace of PSU stake sales comes against the backdrop of multiple economic challenges.

1. Rising Subsidy Burden Due to Global Disruptions

The ongoing geopolitical tensions in West Asia have impacted global commodity markets, particularly:

• Crude oil

• Fertilisers

• Shipping costs

India, being one of the world’s largest fertiliser consumers, faces risks from higher import costs.

The government is attempting to protect farmers from rising fertiliser prices, which could increase subsidy requirements.

Fertiliser Subsidy Pressure May Rise

The Ministry of Chemicals and Fertilisers has sought additional support from the finance ministry.

The existing fertiliser subsidy allocation:

₹1.71 lakh crore

may need enhancement due to:

• Higher import expenses

• Supply disruptions

• Global price volatility

Any increase in subsidies could put additional pressure on government finances.

2. Tax Revenue Growth Shows Signs of Moderation

Another factor behind the divestment push is slower-than-expected revenue growth.

The government estimates gross tax revenue growth at:

8% in FY27

which is lower than expected nominal GDP growth of around:

10%

This gap has increased the importance of alternative revenue sources.

Direct Tax Growth Remains Moderate

Net direct tax collections increased:

5.12% YoY

to:

₹23.4 lakh crore in FY26

The growth rate was below earlier expectations, encouraging the government to focus more on:

• Divestment

• Asset monetisation

• Capital receipts

Experts Highlight Need for Alternative Revenue Sources

Market experts believe the government is looking at divestment as an important fiscal management tool.

According to Dhananjay Sinha, CEO and Co-Head of Institutional Equities at Systematix Group, revenue-side challenges have increased the importance of non-tax sources.

The government is focusing on:

• Optimising available assets

• Increasing capital receipts

• Reducing dependence on traditional revenue streams

Early Divestment Strategy Could Work in Government’s Favour

Market experts believe completing stake sales earlier in the financial year could improve outcomes.

According to G Chokkalingam, Founder at Equinomics Research, postponing divestment towards the end of the year has historically created challenges.

In previous years:

• Market conditions weakened in the second half

• PSU valuations faced pressure

• Divestment targets remained challenging

Conducting sales during stronger market phases could help the government achieve better valuations.

PSU Stocks May Benefit From Improved Market Conditions

Chokkalingam expects market conditions to remain supportive in the near term, especially in:

• Small-cap stocks

• Mid-cap stocks

• PSU companies

Many companies undergoing divestment belong to these segments, potentially attracting investor attention.

Major Divestment Pipeline Remains Active

The government has several large-ticket divestment opportunities ahead.

IDBI Bank Strategic Sale Remains Key Focus

The strategic sale of IDBI Bank continues to be one of the biggest pending divestment opportunities.

The government and LIC together hold a majority stake in the bank.

Previous attempts faced delays, but progress towards a potential transaction has renewed market interest.

A successful IDBI Bank sale could become one of the largest strategic disinvestment deals in recent years.

LIC Stake Sale Could Become a Landmark Transaction

Another major opportunity is further stake reduction in:

Life Insurance Corporation of India (LIC)

The government currently owns:

96.5% stake

in the insurance giant.

Regulatory requirements require the government to reduce its holding to:

90% by May 2027

A future LIC stake sale could significantly boost divestment proceeds.

Impact on PSU Stocks and Investors

The government’s divestment programme keeps several PSU stocks in market focus.

Potentially impacted sectors include:

• Banking

• Energy

• Mining

• Infrastructure

• Insurance

• Defence

• Shipping

Investors are closely tracking companies with:

• Strong earnings growth

• Competitive advantages

• Healthy balance sheets

• Long-term sector opportunities

Benefits of PSU Divestment

The divestment programme offers multiple advantages.

1. Supports Government Finances

Stake sales provide additional revenue without increasing debt levels.

2. Encourages Better Corporate Governance

Greater market participation can improve transparency and efficiency.

3. Expands Retail Investor Participation

OFS transactions allow investors to own stakes in large government-backed companies.

Challenges Ahead for Divestment Programme

Despite progress, several challenges remain.

1. Market Volatility Risk

Weak equity markets can reduce investor appetite and affect valuations.

2. Execution Challenges

Large strategic sales require:

• Regulatory approvals

• Buyer identification

• Detailed negotiations

3. Valuation Management

The government must balance:

• Revenue requirements

• Investor interest

• Fair valuation expectations

Future Outlook: Divestment Could Gain Further Momentum

With the government already achieving nearly one-third of its annual target in the first quarter, FY27 could become one of the strongest years for PSU divestment in recent times.

The pipeline of potential transactions, including IDBI Bank and LIC stake reduction, could provide additional momentum.

Smart Investment Policy Insight

The government’s renewed focus on PSU divestment highlights the growing importance of asset monetisation in India’s fiscal strategy.

The strong start in FY27 suggests that the Centre is actively using capital receipts to manage rising expenditure pressures while improving efficiency in public sector ownership.