India's divestment deals on slow burner: DBS

Says indirect taxes and divestment receipts will be important to fund public infrastructure spending plans

Progress on India's divestment front has been slow in the first four months of this fiscal year, a Singapore-based bank said here today.

"With subdued growth prospects expected to keep a lid on tax collections, indirect taxes and divestment receipts will be important to fund public infrastructure spending plans," said DBS in its daily economic report.

The divestment target is pegged at an ambitious INR 695 billion (0.6 per cent of the Gross Development Product) for this fiscal year, two-thirds of which will be through stake sales in public sector companies.

But DBS pointed out that past records have been unimpressive, with less than half the targets met and bulk of the stake-sales left to the last quarter of the fiscal year.

"Earlier suggestions were that this year will be different, with a more regular stream of asset sales. The process is however off to a slow start with only two sales concluded so far," noted the bank, which also operates in India.

The most recent was a five per cent stake in the state-owned Power Finance Corporation (PFC).

Under revised norms, about INR 16 billion is likely to be raised through this sale, adding to INR 15.5 billion back in April.

Cumulatively, these account for about five per cent of the overall divestment target, pointing to a lacklustre start.

"Rhetoric nonetheless remains positive and signs are that the pipeline of stake sales is strong," it observed.

The divestment department laid out plans to sell stakes in over 10 companies, DBS noted from press reports.

Two big ticket oil companies' -- ONGC and IOC -- stake sales could potentially raise a third of the full year's target.

While these are encouraging, success is still contingent on market conditions and valuations, it said.

And the momentum in the Indian markets has been fairly choppy of late.

Worries over weak earnings, volatility from the Chinese bourses and disruptive parliamentary session have broadly weighed on sentiments, the Singapore-headquartered bank noted.

Any re-pricing of US rate hike bets at the upcoming Federal Open Market Committee (FOMC) meet could hurt risk trades further, putting (the Indian) divestment plans in jeopardy, it said.