Minimum public shareholding: The PSU compliance game of whack-a-mole

The government has granted another extension, until August 2026, for public sector undertakings (PSUs) to meet the 

25 per cent minimum public shareholding (MPS) requirement. This marks the latest in a series of reprieves for government-controlled PSUs, which were initially expected to comply by August 2013. In contrast, private firms faced penalties for missing their initial June 2010 deadline.
 

Currently, 22 PSUs — including half a dozen banks — have government holdings exceeding 75 per cent, requiring stake sales worth Rs 3.3 trillion to reach the target at current prices. Excluding the 2022-listed Life Insurance Corporation of India, which has a longer compliance timeline, the Centre’s disinvestment requirement totals Rs 1.7 trillion for firms with less than 25 per cent public float.
 

Most PSUs, especially those with low floats, have seen remarkable share price gains over the past year. Earlier, the reason for the extension of the MPS deadline was partly the undervaluation of these stocks. However, that has turned into an incentive now.

Nilesh Shah, managing director of Kotak Mutual Fund, highlights the surge in government ownership value in PSUs from less than Rs 10 trillion a few years ago to Rs 40 trillion at present, advocating for prioritising the sale of low-float PSUs trading at elevated valuations compared to their private sector counterparts.