The Disinvestment program has received yet another jolt, this time from the judiciary. However, disinvestment has to move on to improve the fortunes of the economy as well as stock markets. This article explains the effects of disinvestment on Indian capital markets.

This is an oft-quoted line by pro-disinvestment politicians. Disinvestment surely does have its pros and cons, and as in any democracy, everyone cannot be pleased. The pro-disinvestment ministers talk about improving efficiency (both human and physical capital), having a market determined pricing, competition and hence the Government can concentrate on social and infrastructural growth. Critics hold on employee retrenchment and "looting of the country's assets" as great evils of disinvestment. Disinvestment debate has resurfaced after the disinvestment of two oil PSUs hit a roadblock. On September 16, the Supreme Court ruled that oil majors HPCL and BPCL could not be divested without the approval of the Parliament. The verdict caused more than just a flutter in the equity market. It rather flustered the market. Shares of HPCL plummeted from an open of Rs. 400.00 to an intra-day low of Rs. 326.10, then recovered to Rs. 345.50 at close of the market. The next day, the share lost more ground and closed at Rs. 329.90. In two days, investors lost about 17.5% of the value. This was the same HPCL that gained from Rs. 96 in September 1999 to Rs. 449 in September 2003. The disinvestment program has had a profound effect on the fortunes of investors in PSUs. The great PSU rally of late 2002 and early 2003 was fuelled primarily because of speculation about disinvestment in many of them.

Oil and Natural Gas Corporation (ONGC) is the only Indian company on Fortune's Global 500 list. The company's market capitalization is close to Rs. 90,000 cr. The Government holds 84.11% of the company. If this share is divested in the market, it would result in more than Rs. 75,000 cr floating in the equity market. The total market cap of the stocks in the BSE PSU stood at Rs. 312354.526 cr on October 17, 2003. If we assume the average holding of the government to be 60% in these companies, disinvestment can lead to an immediate Rs. 1,87,412.72 worth of equity infusion in the markets. This can go a long way in deepening the equity markets.

Disinvestment program, judiciary, stock markets, Indian capital markets, pro-disinvestment politicians, human and physical capital, infrastructural growth, employee retrenchment, Supreme Court, HPCL and BPCL, Parliament, Oil and Natural Gas Corporation (ONGC), Fortune's Global, market capitalization, Government, equity market, social growth.