Jaitley’s talking of asset recycling, babus aren’t
It is not quite clear what level of the markets the government was targeting in FY16, but it managed to miss most of the peaks and, in the process of trying to time the market, it managed to sell just Rs 18,374 crore of PSU shares as compared to its target of Rs 69,500 crore, and a significant chunk of this came from LIC which may or may not have gone by market valuations alone. Going by an interview of the new disinvestment secretary Neeraj Kumar Gupta, the government is still fixated on this—“let me clarify”, he told Business Standard, “there is no sense of selling in distress”—and so may well be on its way to missing the FY17 target of Rs 56,000 crore as well since there are few triggers that look like they could take the market back to FY16’s highs. The markets could, of course, rise further, but that’s the whole thing about markets, you can’t time them—indeed, what looks like a depressed market today may not, in fact, even be one if earnings projections have also fallen; in the last six months, the Sensex is down 2.3% but, with earnings projections for Sensex companies also down, the index is actually 4% more expensive. In which case, in much the same way that individuals are advised to go in for Systematic Investment Plans, the government should go in for Systematic Disinvestment Plans—a rough target on how much to sell each month, with the details of the shares to be sold kept secret to prevent investors from shorting the stock prior to its sale.
More important, it would appear the babus are on a different page from finance minister Arun Jaitley who, in several post-budget interviews, has talked of ‘asset recycling’, a version of what others called an ‘asset swap’. What that means is that he will take older assets—shares of PSUs or assets in various PSUs such as power plants or unused land or even ports—and sell them and use the money to create new ones. In such a scenario, it doesn’t really matter that much if the Sensex is depressed since, while this will mean the government will get that much less money for sale of an asset, it will also be able to build new assets cheaper than it would have otherwise—like the stock markets, the prices of important inputs like steel and cement are at multi-year lows. If the government is to even hope to achieve its targets, it has to learn this important lesson.