The government’s holdings in listed companies have risen to around Rs 44 lakh crore, nearly four times the pre-pandemic level, creating a large pool of assets that could be monetised through faster divestment, according to an Axis Capital report. A 15% reduction in government ownership over the next three years could raise around Rs 6.6 lakh crore, while increasing the supply of shares available for public trading.
The report said higher government divestment could help address an imbalance in India’s equity market, where strong domestic inflows have absorbed sustained foreign selling. Bringing more government-owned shares into the market could increase free float, ease valuation pressures and reduce the need for foreign capital to fund the country’s equity market.
Government holdings are heavily concentrated in banks and non-banking financial companies (NBFCs), which account for a significant portion of the listed equity owned by the government.
“More high-quality supply is the solution,” the report said, arguing that the government’s large equity holdings represent a significant source of additional investable assets. Government holdings in listed companies are now worth more than $400 billion, according to the report.
The recommendation comes at a time when foreign investors have continued to sell Indian equities despite the domestic market attracting strong flows from mutual funds and other domestic investors. The report said India’s relatively expensive valuations and prolonged weakness in corporate earnings have been the main reasons for foreign selling.
The imbalance is not unique to India. Emerging-market funds have seen outflows even as emerging-market benchmarks have performed better than US markets. By contrast, the US attracted record portfolio equity inflows of about $735 billion in 2025. Taiwan and South Korea also saw outflows, while countries such as China and Brazil attracted more foreign money.
Fiscal pressure
Faster divestment could also provide some relief to the government’s finances. The report flagged risks from weaker-than-expected tax collections and higher subsidy expenditure.
It estimated that if income-tax growth comes in at 12%, compared with the 18% implied in the Budget, the resulting shortfall could be around Rs 76,200 crore. At the same time, higher subsidies could add to pressure on government finances.
The report cautioned that cutting expenditure to compensate for weaker revenues could hurt economic growth. Fiscal pressures could become more pronounced from FY28 with the implementation of the 8th Pay Commission.
The government, however, has already made significant progress on its FY27 divestment target. It achieved around 70% of the target within the first five months of the financial year, largely through the offer-for-sale of shares in Life Insurance Corporation of India (LIC). The proposed sale of the government’s stake in IDBI Bank could provide another significant divestment opportunity.
The Axis report said sustained divestment would not only generate government receipts but also expand the investable universe for domestic and foreign investors, potentially helping India attract capital without relying solely on higher valuations.
