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The Divestment Dividend

Retail investors may get a windfall if the government disinvestment policy takes off

Disinvestment has assumed as much importance on the current Congress-led government’s agenda as it had in its first innings in power, except that it did not do anything about it.

This time looks to be different, at least that is to be assumed from all the talk emanating from the upper echelons of the government.

Prime Minister Manmohan Singh, who assumed office for the second time too, has not held back in sending out loud and clear signals that he will not allow policies to be held hostage to political interests of sections within his government, even though he may not involve those public sector entities in the disinvestment process that are local to the coalition partners, especially in the southern states, reports Economic Times.

Be that as it may, what is of interest to retail investors are reports emanating from the corridors of power that the disinvestment process may hold promise of making available shares of public entities at a discount.

The Prime Minister has already made it clear in his recent address that there is a need for a change in policy outlook. He had stressed on sectors like education, health and environment protection for improving the quality of life of the people which in turn needs resources and to generate them there is a need to expand the pool to deliver the required result.

With the government likely to target the disinvestment process to start later this year, it has generated a lot of interest among investors on how big the sale would be. Reports indicate that disinvestment of a couple of companies shall be immediately taken up – these were held up from the previous government, and for all intents and purposes they are ready for divestment as the paperwork has been completed.

The government is planning to use its discretion and offer a differential pricing format for retail investors. The proposal might find its place in the disinvestment policy that would be announced in the Budget sometime later.

Sources are of the opinion that the government is planning to offer discounts of up to 10 per cent to retail investors classified by market regulator Securities and Exchange Board of India (SEBI) as those who invest under Rs 1 lakh in a public offer of a company compared with high net worth individuals and institutional buyers.

According to SEBI norms, retail investors are entitled to 35 per cent of shares of the total issue size in Initial Public Offers (IPOs). Non-resident Indians who apply for a value of less than Rs 1 lakh will also be considered as retail investors.