Disinvestment fiasco: The ‘aam aadmi’ government failed to take public into account

Despite an extremely favourable market situation in 2010-11, this government’s ambitious disinvestment programme did not succeed because a government of the ‘aam aadmi’ behaved like any other private sector issuer

The government had fixed itself a disinvestment target of Rs40,000 crore for FY2010-11 but it achieved only Rs22,763 crore. Nobody is talking of this year's disinvestment programme. The smart disinvestment secretary who was leading the effort last year has moved on to greener pastures. If anybody has to take the blame for the poor performance of the disinvestment plan of last year-and also the fact that no plan exists now-it should be the disinvestment ministry. This is because after many decades, the climate was unusually favourable for the government in 2009 and 2010 to make rapid-fire disinvestment. Too much money was chasing too few stocks and it was a rare window of opportunity to make the best of it, by issuing shares at a cheap rate to the public, with a large retail quota.

This would have meant returning people's wealth back to them and creating permanent goodwill for the government, so that when the markets were down, the government could still continue with its disinvestment programme. It was also a rare chance to bring back the confidence of retail investors who were averse to investing in the stock market.

It was a historic opportunity, but the government blew it. The Centre was too confident about its plans, and priced its issues too high.

Indeed, a government which claimed to represent the aam aadmi, acted like a private-sector player in trying to extract as much value as possible for the government kitty, instead of acting like the custodian of public wealth, which it was sharing through the disinvestment process. This process had a hard commercial edge. No wonder that a majority of issues are quoting below the offer price and therefore the disinvestment plan has no takers among investors.

In 2010, when the market was all set to reach new highs, out of the nine companies which came for raising capital, six have underperformed. Shipping Corporation of India's issue priced at Rs140 is currently at Rs102.85 (down 27%). An issue like that of NHPC Ltd has failed miserably, with its stock quoting at 33% below its issue price. The reason? The disinvestment of assets was dominated by policies that would motivate the private sector players—extract as much as possible from investors at the peak of a bull market.

That is a pity because, unlike the previous governments, which tried to disinvest but floundered on issues like lack of internal consensus, bad market conditions and political opposition, disinvestment for this government was a cakewalk. When the current government came to power, the conditions for raising capital were perfect. The market had just begun a long upward ascent. The international situation was favourable, interest rates and inflation were low and the opposition to selling public sector assets was non-existent.

But instead of tailoring the programme to what would benefit the public, the pricing was designed to extract as much value as possible for the government.

There was another problem with the disinvestment plan—government officials who are bright, but had no truck with the capital markets, were taking vital decisions whose implications they could not visualise. They believed in their own pitch, in the so-called 'India story' and listened to voices which told them in late 2010 that all is well. Moneylife pointed out to disinvestment secretary Sumit Bose in late October 2010 that market intermediaries as well as big investors privately admit to being seriously worried about the sharply-rising indices and ridiculously high valuations. The government would have to be unusually quick to exploit the current window of opportunity.

Mr Bose told Moneylife that in a recent trip to the US, he found that investors were not too worried about Indian markets being overvalued or overheated. This is what he had gathered from his interactions with top institutional investors in the US, whom he had met individually. Unfortunately, this turned out to be wrong as Moneylife had suspected. The Indian markets were indeed overvalued and the Sensex peaked out on 5 November 2010 at 21,108.64 (intraday high). The market went into a tailspin, multiple scams broke out, inflation reared its head, interest rates went up and the disinvestment plan fell apart. Another lesson learnt? No chance.



C M Kumar

6 years ago

It is a matter of great shock and pain that intellectuals like MDT team with renowned editor are also pressing for
"aam aadmi " led disinvt ...

i fail to understand : Why ?

who is aam aadmi .. are they representing whole of India . The so called aam admi are well concentrated in metro's ...

Is any one pitching for quotas in PSU for Defence men who are serving our nation !!

We compare everything with China , Or is there any nation which tries to sell its imp assets like the one done in India in last 2 decades ...look @ China !

Pl inform "aam admi " that Govt has already offered them Maruti , ONGC ,
Powergrid , and host of PSU at a steep discount those days ..

Hind Zinc's , CMC's , VSNL's were also sold for the benefit of " Aam admi "

So , the moot question is that any need for selling golden assets of PSU.

If Delhi Metro , an arm of Govt can do fine execution , why not others also, that is the moot point

So , it is a humble appeal to so called
Aam Admi not to seek PSU disinvt and need to be more patriotic towards Nation as these assets would be key to future generations...

alok churiwala

6 years ago

Most of the follow up offers of Govt. co's have their stock on the FNO segment, where there is rampant short selling just before an FPO issue is announced. This also influences the price at which the share is finally issued. The only ppl who make a killing are the FII's and the country is short changed. One way to overcome this is to suspend trading of FPO scrips in the FNO segment prior to an issue being announced.


6 years ago

all psu fpo are in discount than the offer price such as nhpc,sjvn,nmdc and ntpc only two psu ipo done very good coal india and oil india.

Nagesh KiniFCA

6 years ago

The MDT has researched extremely well. The PSU Maharatnas can compare with any private big player, both in terms of ROI and valuations. The babus are being manipulated by private sector speculators. It is time the Disinvestment Department is freed from the shackles of bubugiri and adopts a purely business like market approach. It should be converted into an autonomous setup like SCOPE. The ONGC issue that is held up ought to come out.

Ram Ohri

6 years ago

Keep in Indian economy file

Govind Gopal Shanbhag

6 years ago

Boss - what is the duty of govt it is only to govern and not to run industry, hotels etc. Except for public utility services rest should be privatised offering the share to retail investors. Let Govt. have a controlling interest by way of adequate share holding (not majority) but adequate so that their nominee is in the board leave the running to pvt sectors.

BSE SME Exchange to launch separate index

“We have already decided to set up a SME index within six months after launch of the SME Exchange,” CEO of BSE SME Exchange L Gugolothu said

BSE SME Exchange, a part of Bombay Stock Exchange (BSE), would launch a separate index specifically for small and medium companies, an official of the bourse said on Wednesday.

"We have already decided to set up a SME index within six months after launch of the SME Exchange," CEO of BSE SME Exchange L Gugolothu told reporters.

He said that SME Exchange was expected to be launched by September.

Replying to a query, he said that there are 4,000 BSE-listed companies having a paid-up capital of up to Rs25 crore.

Gugolothu said that BSE SME Exchange would target these companies for switching over, for which they are not further required to go for a fresh issue.
"They will only have to comply with the listing norms of the SME exchange," he said.

He said that listing fees is 50% of BSE and companies are not required for announcing quarterly results but go for half-yearly disclosures only.
Illiquid scrips on BSE could opt for the SME entity to bring in liquidity of the scrips, he stated.

Once a critical mass was obtained, the division would be spin off as a separate entity, he said.


Allow up to 49% FDI in multi-brand retail: Consumer affairs ministry

On the other hand, the Department of Industrial Policy and Promotion, which is piloting the proposal for the politically sensitive sector, is in favour of a majority stake (51%) for foreign retail chains, with set-up conditionalities

New Delhi: Amid a debate within the government on allowing foreign direct investment (FDI) in multi-brand retail, the nodal consumer affairs ministry is insisting on a FDI cap of 49% in the sensitive sector, reports PTI.

"Starting with 49% FDI in the sector would be a safe thing," a senior consumer affairs ministry official told PTI.

However, the Department of Industrial Policy and Promotion (DIPP), which is piloting the proposal for the politically sensitive sector, is in favour of a majority stake (51%) for foreign retail chains, with set-up conditionalities.

Prime minister Manmohan Singh, in his interaction with editors yesterday, said there is a "big debate about it" in the government and Parliament.

"There is fear of small traders, but without breaking such institutional barriers, there is fear of food inflation.

I am hoping we can make a beginning in these areas. These are some of the ideas that are uppermost in my mind," Mr Singh said.

The other big area of inter-ministerial differences relate to the minimum limit set for investment.

Of the $100 million (about Rs450-Rs460 crore) minimum investment proposed by the DIPP, at least 50% has to be earmarked for back-end infrastructure like cold storage, soil testing labs and seed farming.

However, the consumer affairs ministry wants a larger share of 75% of multi-brand retail FDI to be invested in back-end supply chains.

"As India's back-end infrastructure is weak, the foreign investor should invest at least 75% of the $100 million in it," the official said.

While the DIPP has floated another discussion paper on the subject, a committee of secretaries is going through the issue and is expected to meet again soon.

The industry ministry has also proposed that multi-brand retail giants like Wal-Mart, Carrefour and Tesco may be allowed only in the 36 large cities which have population of over 1 million, according to the 2001 census.

Retail giants like US-based Wal-Mart and French Carrefour are very keen to enter the segment.

Bharti Enterprises and Wal-Mart Stores entered into a joint venture in August 2007, and started cash-and-carry stores named 'BestPrice Modern Wholesale' in 2009.

At present, 51% FDI is permitted in single brand retail, while 100% is allowed in the wholesale cash-and-carry segment.


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