Column : The indirect disinvestment route

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: The finance minister, in his budget speech, rightly said that deep, non-manipulable markets require larger and diversified public shareholdings of both public sector and private sector companies. The average float in public sector companies (PSUs) is less than 15%, and the number is not impressive for private sector companies either.

Pranab Mukherjee has reiterated the government’s committment to increase public holding in PSUs to 49%. In fact, larger retail participation in the stock market is a hallmark for a matured market which would reduce volatility and boost company fundamentals. The finance minister’s proposal to encourage people’s participation in the government’s disinvestment programme and to raise, in a phased manner, the threshold for non-promoter public shareholding for all listed companies is thus a welcome step.

From a political point of view, the government has replaced the politically risky term ‘divestment’ with the safer ‘people ownership’. Given that there are 160 profitable public sector companies out of a total 240, the incentive to invest in these companies will increase manifold. It would be easier for small investors to take informed decisions as most of these companies have strong fundamentals and clean accounting procedures but are not able to grow for lack of funding or capital. Also, the risk of investing in them would be considerably lower, as the majority stake will continue to remain with the government. There are many companies which have a lot of hidden value, and opportunities to do well, if infused with fresh capital.

In fact, of the 50 Nifty companies, 10 are PSUs and in the 30-share Sensex, three are PSUs. The wealth creation capabilities of these companies have been proven and would encourage small equity investors when the selloff process takes off. Greater participation of small investors would also keep the pressure on these companies to perform well and increase shareholder’s value.