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.