Talk to any market player these days, and there seems to be just that bit of relief that the worst period of volatility for the stock markets may be behind us. No doubt, there is volatility in the market even now, but the fear and trepidation which had gripped the bourses a couple of months ago seem to be on the decline. There are reasons for this. Crude seems to have come off its highs for now, and is hovering below the $115 mark, a far cry from the time when it was surging perilously near the $150 mark not so long ago. This, in turn, has led to many in the financial sector reckoning that for now, the pressure may have eased just a wee bit on the markets. Over the past month, just prior to and after the United Progressive Alliance (UPA) government won the confidence vote in Parliament, the market has been showing signs of gaining in confidence. The BSE Sensex, which was at 12,576 on July 16, stood at 15,212 on August 12 and though it?s hovering around 14,700 levels as this column is being written, the signs aren?t as bad as they were some months ago.

The government?and in particular finance minister Palaniappan Chidambaram?has been vocal that that the ruling coalition will now seek to push through its pending reform agenda as much as possible, and will seek to reach out even to the opposition if necessary to get it on board on crucial reforms. While the jury is still out on how much success the government will meet on reforms which require legislative clearance, there seems to be a consensus building even in the financial sector that the time is right for the government to push through partial stake sales in public sector undertakings (PSUs). In fact, the general feeling in the financial circuit is, of all the reform measures which are feasible, small stake sales in PSUs is the one which is most possible in the present context. Even global ratings firms like Standard & Poor?s feel this is possible and will help ease some pressure from the fisc.

The government realises this. A report in this paper, on August 13, said it is drawing up a plan to divest 15% stakes in five PSUs, including Bharat Sanchar Nigam Ltd (BSNL). This can only be good news, since it underscores the fact that the government is willing to walk the talk on partial disinvestment of PSU holdings.

Unfortunately, thanks to political compulsions, it was unable to capitalise on the bull run earlier. Had it been able to, it could have netted substantial amounts from small stake sales even in listed PSUs by way of follow-on offers. FE research data shows the government still has huge leeway in terms of stakes in several listed state-run entities. It has over 79% in ONGC, 89.5% in NTPC, 99% in MMTC, 98% in NMDC, 86% in PowerGrid and so on. Divesting 5% or so in some of these alone can net the government hefty sums, even in the present market conditions. And one is not even talking of the banks, which are politically sensitive territory. Already, the fresh draft red herring prospectus of NHPC has been filed and the government is also readying offers for Oil India and Rites. The FE report also says that the plan is to hit the market by November as the market should have improved further by then.

Financial circles reckon around Rs 4,000-5000 crore can be mopped up by the government by such stake sales between now and March, if it goes ahead with a mix of determination and caution. With the fisc posing a serious problem, disinvesting partially will not only bring in monies but also send a signal on reform. However, in such market conditions, pricing the issues right will be of utmost importance. While there will be appetite for good government paper despite the fact that conditions at the bourses are not bullish, pricing such issues too high or too low can be fraught with problems. The government would not want to be charged with selling such stakes at prices which are seen to be too low, and yet the pricing has to be right for healthy demand to be generated in a subdued market. That will be the challenge for the government?s merchant bankers. But the time to move ahead on this is now. The government can?t afford to miss the bus this time round.

?sourav.majumdar@expressindia.com