disinvestment..!

The new government has realised the merits of disinvestment and has sold stakes in NHPC and oil india limited through an IPO offer. It has plans to sell 10% stake in SAIL. BSNL is expected to come up with an IPO within 6 months. The earlier left supported government couldn't proceed on disinvestment due to strong protest from left-wing parties. Such funds generated can be spent on social sector whereby the benefits can directly reach the masses. The proceeds from the stake sales are deposited in a special purpose vehicle known as National Investment Fund. Such stake sales subject these firms to market discipline and increase their market capitalization. It puts management to constant scrutiny as they can be judged on parameters like share price and EPS.

However, there are certain issues which need to be considered to make this disinvestment story a real success. First of all, it should be ensured that state assets are not sold at thrown away prices. Secondly, employees of such companies must be taken into confidence before such stake sale as fear of job loss often make them oppose such disinvestment. Thirdly, government should try to have its IPOs priced in a way such that retail investors realize listing gains on the first day of trading.It will increase the marketability of new IPOs.