The Hindu Business Line : Leave the bears alone

IT IS HARD to fathom the Disinvestment Minister, Mr Arun Shourie's charge against the so-called bear cartel for driving down stocks of the public sector units put on the block by the Government. It can be nobody's contention that whoever is beating down these stocks is doing something illegal. If these bear operators think that stocks of ONGC or, for that matter, GAIL India are worth less than their current market prices, they are, after all, putting their money (or stocks, if you will) where their mouth is.

Witness, for instance, the fact that nearly 3.25 lakh ONGC shares were offered for delivery at the contracted price at the two premier stock exchanges on the day prices were supposed to have been hammered down. Equally, there can be no objection to the fact that by doing so the operators expect the Government to offer these shares at a lower price than what they would fetch in the normal course. In the event, all that the Minister had to do was to pull the issue out of the market and speculators would have looked silly for offloading at prices less than their intrinsic worth. As it is, the public lament about the activities of the speculators has only served to reveal the utter helplessness of the Government's position.

The Government has, of course, only itself to blame for the predicament it finds itself in. Instead of being a routine decision, guided solely by cost-benefit calculations, disinvestment has been mixed up with electoral politics. A successful exercise has somehow been seen as bolstering a government's reformist credentials with its perceived implications for gains at the hustings ahead. Speculators were able to divine that the Government could not afford to defer the issue, and exploited this to their advantage. And advantage there is because price signals from small volumes (relative to the quantum of shares on offer) of daily trades do transmit to the offer price. It is no coincidence that the floor price for the GAIL offering has been fixed at Rs 185 against the average price of Rs 196, at which the shares were sold and delivered on Wednesday. If price signals from the sale of, say, 10 shares even at a loss of two rupees could translate into profit (over intrinsic worth) of five rupees per share, on the future acquisition of 20 shares, the resultant profit makes the speculative exercise worth the while.

The policy confusion which impacts earnings of disinvesting enterprises only makes the job of price discovery in the market that much more difficult, thereby giving speculators a free hand. For instance, even today it is by no means clear if the Dredging Corporation would have any price/supply preferences in the dredging market in the country. The situation is tailor-made for speculators to float all kinds of rumours to keep genuine investors away from the book-building process. This could have been avoided.

More Stories on : Editorial | Public Offer

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Leave the bears alone

Why this shine is for all

Ambiguities in fertiliser policy — Major stumbling block to privatisation

Iraq: Beyond crony capitalism

Why Governors?

`Talk business without cobwebs in the mind' — Mr Majyd Aziz, President, MHG group of companies

'Military, politicians are to blame for Pakistan's plight'

Conditional imbroglio

Nuclear weapons

Forex reserves