Disinvestment disappointment - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Disinvestment disappointment

Sep 14, 2002

Having slowly found its feet over the past two weeks, markets once again tripped, as a spanner was thrown into the 'disinvestment' works. Adding to the gloom was 'war talk', west of the Atlantic. Consequently, crude oil prices have been firming up, threatening to further dibilitate the global economy.Coming into the week disappointed, investors' in unprecedented fashion, dumped public sector (PSU) stocks, especially Hindustan Petroleum (HPCL) and Bharat Petroleum (BPCL), which collapsed at start of the week. The BSE Sensex fell by over 1% this week. Section of investors and media got one more reason to malign the Government.

We have maintained that disinvestment historically has been a 'random event'. Not being an insider, one cannot possibly perceive the 'risk factors', which could de-rail momentum of the programme. A perspective of the challenges has been highlighted by the Minister of Disinvestment in a leading business magazine. Having said that, we reckon, the Government recognises that disinvestment -- now privatisation -- is a question of not 'if' but 'when'. Consequently, short-term bets could back-fire but a long-term horizon could result in better outcomes.

On the subject of 'when', progress in a developing democracy is hostage to consensus building, leaving aside in-sincere intentions (and there is lots going around) and therefore decision-making takes longer. The three month deferrment of the programme, it seems, is to re-build consensus on privatisation among coalition partners and especially within the ruling party. Opposition was not towards disinvestment, which could be sale of Government holding to the public, but towards privatisation of public assets. On the other hand, we always compare with China and momentum of economic development achieved by that country. But then China is under military rule and building consensus may not be a priority. Some reports suggest, China has the largest number of state executions, which could indicate 'my way or the highway' approach. Therefore, India needs to recognise that while freedom must be enjoyed it must also be respected, especially by those who could be sabotaging Government efforts on privatisation.

Over the nineties, political & mass consensus has shifted from a socialist mind-set to a more market driven ideology ('capitalism' still seems to be a bad word). Thinking shifted from Government ownership of assets to true public ownership -- sale of Government equity to financial institutions and the public -- to raise resources and increase PSU accountability. This thinking has now shifted to strategic sale -- privatisation -- of Government assets. In addition to the above benefits, privatisation leads to better allocation of resources. Also, tax payers' money is not required to be exposed to the 'commercial risk' of business.

While disinvesment targets have not been met in the past, one should also consider that the Finance Minister could very easily set an achievable target. Over the past two years, resources have been unlocked from public assets not through public sale of equity or PSU cross holdings but through privatisation. The number, as a percentage of target has also been increasing.

That said, supporting Government action runs the risk of diluting urgency in reforms, as one tends to become complacent. Therefore, a discerning populace is required to determine a fine balance of 'carrot & stick' approach. And in last resort, should the Government reverse decisions supported by the majority, the mandate to govern can be offered to party/ies with more alligned ideologies.

Equitymaster requests your view! Post a comment on "Disinvestment disappointment". Click here!

  

More Views on News

Best Banking & PSU Debt Funds to Invest in 2021 (Outside View)

Apr 13, 2021

PersonalFN explains the outlook for Banking & PSU Debt funds and the best Banking & PSU Debt funds that can be considered for investment in 2021.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

Why Did the Market Crash on Monday? (Fast Profits Daily)

Apr 13, 2021

In this video, I'll you what I think is the real reason behind yesterday's market crash.

The Next Set of Smallcap Winners (Profit Hunter)

Apr 13, 2021

Price is the only due diligence one might require to buy this business.

Should Mutual Fund Investors Worry About Partial Lockdown? (Outside View)

Apr 12, 2021

PersonalFN explains whether the second wave of COVID-19 infections impact your mutual fund investments.

More Views on News

Most Popular

My Recent Recommendation Will Profit from the Global Supply Chain Crisis (Profit Hunter)

Mar 31, 2021

A tiny chemical company, started in the Licence Raj era, is a great example of a new wealth creating opportunity.

My Stock Trading Strategy (Fast Profits Daily)

Mar 31, 2021

In this video I'll show you exactly how I go about picking stocks for trading.

4 Stocks to Make Your Portfolio Immune to the Second Covid Wave (Profit Hunter)

Apr 6, 2021

Rather than predicting the market, successful investing is more about preparing well and placing your bets accordingly.

If the Market Falls, I Will Do This... (Fast Profits Daily)

Apr 1, 2021

What should you do if the market falls? In this video, I'll tell you what I will do.

India: Recovery Stalled by Vaccine Games? (The Honest Truth)

Apr 13, 2021

Ajit Dayal on how India's vaccine strategy will impact the markets.

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Apr 13, 2021 (Close)

MARKET STATS