IRFC, Mazagon Dock, MRPL, NTPC Green, SJVN shares: Why are PSU stocks with high govt stakes falling?

Out of the 11 PSU stocks in which the government's stake exceeds 75 per cent, 10 have posted negative returns over the past one month, with Central Bank of India emerging as the biggest laggard, declining 18 per cent. The weakness in these counters has coincided with a broader market correction, with the Sensex and Nifty falling 3-4 per cent during the period. Investor sentiment has also been impacted by recent offer-for-sale (OFS) issues by Central Bank of India and Coal India, which together raised Rs 7,808.49 crore, while NHPC's OFS is currently underway.

The pace of recent divestments has surprised many. Kotak Institutional Equities expects the Indian government to pursue disinvestment more aggressively in FY2027-28, given rising fiscal pressures and strong performance of many PSU stocks. 

"The government owns more than 51 per cent of many non-financial and financial PSUs and has been a reluctant seller in PSUs. It has consistently missed its divestment targets in the past few years, as it could meet its fiscal targets without resorting to large-scale disinvestments," Kotak Institutional Equities said.

In particular, Kotak said the sharp increase in dividends from the RBI compensated for lower-than-budgeted disinvestment revenues in FY2024-25. 

"However, lower-than-budgeted tax revenues on excise duty cuts on diesel and gasoline and modest increase in dividends from the RBI for FY2027 versus in FY2026 may force the government to raise additional revenues from disinvestment of PSUs," Kotak said in a note.       Data compiled by Business Today showed Central Bank shares have fallen 18 per cent to Rs 29.97 apiece on Tuesday against Rs 36.41 on April 30. The floor price of the Central Bank OFS was set at Rs 31 per share, an 8.66 per cent discount to the then prevailing price. Mangalore Refinery And Petrochemicals Ltd (MRPL), Mazagon Dock Shipbuilders Ltd, NTPC Green Energy Ltd, SJVN Ltd and Indian Railway Finance Corporation Ltd (IRFC), where the government held 82-89 per cent stakes declined 8-13 per cent in the past one month. 

UCO Bank, Indian Overseas Bank and General Insurance Corporation of India, where the government owned up to 91 per cent stake, fell 5-7 per cent. The New India Assurance Company Ltd was flattish while Life Insurance Corporation of India  gained 1.41 per cent during the same period.

There are reports that the government, which held a 96.50 per cent stake in the country's largest life insurer, was planning to sell a 2 per cent stake to institutional investors by June-end or early July.