In May 2009, when the UPA returned to power, all hell broke loose as the Sensex rose 2,000 points and refused to climb down. After less than a minute of trading, the bourses had to be shut down for the day. This unforeseen euphoria was attributed to the post poll math that showed the Congress-led UPA claiming the treasury benches without any support from the Left parties.
But the Street missed the hidden gems of the Left-less UPA-II, such as Mamata Banerjee. While she didn’t let us miss the Left stalling everything the Left would have – foreign direct investment in retail, insurance and pension Bill – she let go one crucial thing. Maybe she was holding her belligerent self back until the West Bengal elections in 2011. The government managed to flag off the disinvestment train in what now appears to be the ultimate double whammy for the Street.
Blocked by the Left, the entire UPA-I regime between 2004-09 did not see much disinvestment. There were a couple of initial public offerings, and the sale of Maruti shares to public sector financial institutions. Together, these sporadic sales raised a measly Rs 8,500 crore for the exchequer, accounting for eight per cent of some Rs 124,253 crore raised by 327 public issues in this period.
Compare this with UPA-II, when the disinvestment programme has raised Rs 81,094 crore in four years. This fiscal, they look good for a further Rs 3,000 crore. That is 54 per cent plus of the total funds raised through the primary market. That’s not all. By the time the present dispensation walks in to the elections, North Block’s boring bureaucrats would have sold a mind boggling Rs 145,000 crore of PSU shares. And, guess what, they would have done it all without paying much to the flamboyant, quote-dropping investment bankers and wily middlemen on the Street.
For all its virtues of unlocking value for the cash-strapped government, the programme has hurt the Street in more ways than one. Besides the obvious outcome of sucking out the liquidity available to corporate fund-raising and thereby hampering the investment cycle, the supply of paper has also put a cap on the Sensex valuation.
For all their indulgence in luxury yachting, Gulfstream jetting and pumping own stock through Mauritius, Indian promoters would have still had a few thousand crores left to dump in to building plants and buying machinery. That was not to be.
The ‘insurance’ the government has built up in the form of Life Insurance Corporation (LIC) ensures that the government also sells at the price it chooses. In post-Budget interviews, the minister has hinted that there will be a policy to ensure that only a select pool of investors (read LIC and SBI) would be allowed to buy shares sold by SUUTI. Thus, the new money either goes into the government coffers or goes to buy the shares offloaded by the government sidekicks to help them raise cash to put into government coffers. The Centre also uses its lever in the regulatory agencies to tinker with the selling routes to get itself the best deal, in the process killing intermediaries’ business models.
While TRC may be the Budget pinch, that may have been soothed with all the sweet talk later, the revised disinvestment target is a blow that will bleed the Street to death from inside, slowly and surely.
