Government Stake Sales Could Raise ₹6.6 Lakh Crore Over Three Years, Axis Capital Estimates

A gradual reduction in government holdings across listed companies could open up a sizeable pool of shares for investors while also bringing in additional non-tax revenue for the Centre. Axis Capital estimates that cutting these holdings by 15% over three years could raise about ₹6.6 lakh crore. 

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The brokerage’s case for faster divestment comes at a time when foreign portfolio flows into Indian equities have remained unsettled. FPIs returned as strong buyers in July and August before selling resumed in September. Meanwhile, steady investments through mutual funds, systematic investment plans and insurance companies have continued to provide domestic demand for equities. 

Why More Shares in the Market Could Matter 

Axis Capital’s assessment points to a mismatch between demand for Indian equities and the availability of investable shares. Domestic institutions have absorbed a substantial part of the selling by foreign investors, helping the market accommodate those exits. 

Government holdings in listed companies, meanwhile, are estimated at around ₹44 lakh crore, roughly four times their pre-pandemic level. A significant portion of those holdings sits in banks and non-banking financial companies. 

Reducing some of these stakes would increase the public float in companies where government ownership remains high. That could also give large global funds more room to invest, since restrictions on individual company exposure can limit allocations when relatively few shares are available for public trading. 

Axis Capital does not suggest that a larger free float would automatically draw foreign money into India. Its assessment is narrower: increasing the supply of listed shares could reduce the imbalance that arises when domestic money absorbs foreign selling while valuations remain elevated. 

Valuations and Earnings Remain Part of the FPI Equation 

The report also places foreign selling in the context of India’s relative valuations and earnings performance. 

India has traded at an average 12% valuation premium to global equities over the past 14 years, compared with an 8% premium before the Covid period, according to Axis Capital. 

When earnings growth does not keep pace with valuations, foreign investors may find relatively better risk-adjusted opportunities elsewhere. Currency movements, US bond yields and changes in global risk appetite can further influence those decisions. 

The experience of other emerging markets also features in the assessment. Taiwan and South Korea gained weight in the MSCI Emerging Markets index during the global artificial-intelligence investment cycle but still experienced sizeable foreign outflows. Global capital also moved towards markets including China and Brazil. 

The US, by comparison, attracted a record $735 billion of portfolio equity inflows in 2025. 

Divestment Could Also Add Room on the Fiscal Side 

The argument for additional stake sales extends beyond equity-market liquidity. 

Axis Capital estimates that the government could face an income-tax collection shortfall of about ₹76,200 crore in FY27 if collections grow 12%, rather than the implied 18%. Higher subsidy spending could add another layer of pressure, while the implementation of the 8th Pay Commission could keep fiscal considerations in focus into FY28. 

Divestment offers a way of raising non-tax receipts without relying entirely on expenditure reductions or additional taxation. 

There has already been movement on this front. The government achieved around 70% of its FY27 divestment target during the first five months of the financial year, helped largely by the Life Insurance Corporation of India offer for sale. The proposed IDBI Bank stake sale is among the transactions still in the pipeline. 

A sustained programme of stake reductions would go beyond individual transactions. On Axis Capital’s estimates, a 15% reduction in government ownership over three years could generate roughly ₹6.6 lakh crore while expanding the pool of shares available to public investors. 

It would not remove the other factors that determine foreign flows including earnings, valuations, currencies, interest-rate differentials and global risk appetite. The change would instead give the market a larger supply of investable equity while providing the government with another source of receipts.