One reason often advanced for the decline in value of the scrip is that refining margins have been under pressure. But given IOC's marketing clout, and the fact that margins are higher in marketing than in refining, this should not have affected the company's price so drastically. As a matter of fact, for the first half of 1998-99, the company's net profit increased by over 50 per cent compared to thecorresponding period of the previous year.

This was due in part to higher volumes, and also to the beginning of the phased dismantling of the Administered Price Mechanism. Clearly, bad performance has not been the reason for the lack of enthusiasm of investors.

The government has to make up its mind on the kind of disinvestment it wants and the speed at which it will divest. The trouble with the IOC scrip is that the market is not sure about the kind of disinvestment which will take place, nor of the speed of liberalisation. Given the small amount of free float, it is only natural that the stock could be victimised by sellers and speculators. There is a constant threat of equity dilution not only in IOC but also in ONGC.

IOC's free float is just nine per cent while it is less than half of that in ONGC's case. Which is why foreign funds were keen on a government disinvestment through the GDR route, rather that having to pick up very small lots in the secondary domestic market, where the risk of being hitby aggressive speculators is greater. The GDR option in turn offered the government with a ready made exit route (though with a little bit of effort and time invested) from a portion of its equity.

But now, following its misadventure over disinvestment through cross holdings even the eager GDR markets have given a thumbs down. The government now has no option but to divest its stake by the crossholding route, robbing these companies of a better valuation even as the government's short term objective is met.