After Bull Run, Govt's Grip Loosens on NSE-Listed Companies in FY25

FY25 was a volatile ride for markets, with a robust first half and an eventual crash in the second. Despite a turbulent trajectory, domestic mutual fund ownership remained strong as average monthly SIP inflows surged by 45.2% year-on-year (YoY) in FY25. However, government ownership took a hit.

After a steady rise in two years, the government's share in NSE-listed companies dropped in FY25. According to NSE data, the government’s stake in listed companies dropped by 5 basis points from the previous quarter to 9.9% (as of March 2025), the lowest in six quarters and 1.5 percentage points below the post-Covid peak in June 2024. The decline was even sharper in major indices where the government’s share in the Nifty 50 and Nifty 500 fell by 34 bps and 33 bps respectively, to 6.8% and 10.6%.

While LIC’s listing and the rally in PSU stocks might have earlier driven up government ownership in absolute terms, the momentum didn’t last. In FY25, the trend reversed, largely due to the sharp underperformance of PSU banks. The Nifty PSU bank index dropped 10.6% over the year, even as the broader Nifty total market index gained 5.5%.

This relative weakness impacted the overall valuations and contributed to the decline in the government's holding, as per analysts. However, this alone didn't pull down the ownership stake. A combination of regulatory play and policy book also added to the trend.

Ownership in Flux

The government holds equity in NSE-listed companies mainly via CPSEs, PSUs and other entities. These are state-backed players and any price swings or stake sales directly affect the overall level of govt ownership in the market.

"The government’s stake in NSE-listed companies slipped slightly to 9.9% in the last quarter, continuing a gradual trend shaped by regulatory requirements and policy direction. SEBI’s public shareholding norms are driving many PSUs to reduce promoter holding over time," said Mayank Mundhra, FRM- VP risk and head of research at Abans Financial Services Ltd.

Wile the government has already granted a public interest exemption, giving CPSEs, PSBs and financial institutions time until August 1, 2026, to meet the 25% public shareholding requirement, deadlines for certain PSUs continue to linger.

For instance, LIC has been directed to raise its public shareholding to 10% by May 2027. IRFC has also been directed to reduce the government’s stake.

According to analysts, many public sector banks have received similar instructions. The centre might start offloading minority stakes in five public sector banks via offer-for-sale (OFS) method in the next financial year, as per a recent report by moneycontrol. The lenders involved are Bank of Maharashtra, Indian Overseas Bank (IOB), UCO Bank, Central Bank of India, and Punjab & Sind Bank.

Meanwhile, just looking at the percentage of government ownership in PSU companies doesn’t tell the full story.

"The holding percentages need to be looked with respect to the market caps of PSUs. Weak stock performance in the PSU sector is also playing a role," said Mundhra. The S&P BSE PSU index plummeted over 16% during the March quarter, against a single-digit decline of 6% in the benchmark Sensex index.

Interestingly, this drop in govt ownership comes at a time when FPI ownership in NSE-listed firms has inched up. In the March quarter, FPI holdings increased slightly by 12 basis points to 17.5%. This was majorly owing to gains in private banks where FPIs have significant investments. They also boosted their investments in microcap companies with their share in firms outside the Nifty 500 reaching a 10-quarter high. FPI holdings in the Nifty 50 stayed steady at 24.3%, while in the Nifty 500, it fell by 28 basis points to 18.5%.

However, excluding the financial sector, FPI ownership dropped 26 bps to a 13-year low of 15%.

Whether government ownership will reverse its downward trend depends entirely on PSU stock performance and the regulatory deadlines.

"Going forward, the trend of dilution is expected to continue in a staggered manner. A meaningful reversal would depend either on a sustained outperformance by PSU stocks or an extension in regulatory timelines. Until then, stake sales will likely remain a key part of the capital market landscape," Mundhra said.