PSUs Could Be Tapped for Funding as Stock Market Soars: Axis AMC Report

The report highlights that a well-executed PSU divestment strategy could have far-reaching benefits for the Indian economy.

PSUs Could Be Tapped for Funding as Stock Market Soars: Axis AMC Report

New Delhi: According to a report by Axis Asset Management Company (AMC), the government should utilize the surge in shares of public sector enterprises (PSUs) to continue funding capex while reducing the fiscal deficit. The asset manager suggests that by divesting in a staggered manner, reducing their holdings by 300 basis points each year, the government could generate over Rs 2 trillion (0.6 percent of GDP) in capital receipts. This would help bridge the fiscal deficit and reduce net market borrowing.

The report highlights that a well-executed PSU divestment strategy could have far-reaching benefits for the Indian economy. It could attract foreign investment, improve corporate governance standards, and generate funds for further infrastructure development and social welfare programs, thereby enhancing the dynamism and competitiveness of the economy.

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The rally in almost all PSU stocks over the past year has led to their aggregate market capitalization rising to Rs 67 trillion, which is approximately 17 percent of India's total market capitalization. At the beginning of 2023, the combined market capitalization of the PSU pack was only Rs 37 trillion.

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Ashish Gupta, the Chief Investment Officer (CIO) of Axis AMC, highlighted four reasons behind the re-rating of PSU stocks and their robust performance. These include the strong financial resilience of traditional economy sectors during the Covid-19 pandemic, government policies and reforms such as defence indigenization, a heightened focus on corporate governance (including formalized payout policies, balance sheet restructuring in public sector banks, and a structured divestment strategy), and attractive valuations with many firms reaching decade-low valuations and offering dividend yields surpassing those of debt instruments.

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