It was neither a broker nor a company but Disinvestment Minister Arun Shourie who sent shock waves through the stock markets last week. Stung by the luke warm market response to the public offering of the public sector unit (PSU) companies, Shourie lost his cool and lashed out against the broking and investment banking community.

Referring to the fall in share prices just before announcement of the floor prices of the PSU companies, Shourie said, "We have identified the people behind it. Some people worked in anticipation that the Government will give a 5-10 per cent discount from the last closing price when it announces the floor price." That sent brokers and investment bankers cowering and left the retail investor more confused than he was before.

The genesis of the problem perhaps began when the government decided to embark on its 'India Shining' campaign. A part of the action plan, calculated to keep India shining, was to sell the Government of India's residual stakes in IPCL, IBP, CMC, Dredging Corporation of India, GAIL and ONGC. The exercise was to be completed before March 31, irrespective of market conditions, liquidity and timing. The sales are slated to bring in about Rs 15,000 crore to the government's kitty and help reduce the fiscal deficit.

Beginning last Monday, sale offers for IPCL, IBP, CMC, GAIL and Dredging Corporation of India Ltd opened. The government also began road shows for ONGC, the offer for which opens on March 5. The first five companies were expected to fetch Rs 5,000 crore cumulatively, while ONGC, billed as the 'mother of all issues,' was to have brought in Rs 10,000 crore.

Apart from these PSU issues, several other issues of well known companies like Bank of Maharashtra, Petronet India, Power Trading Corporation and Biocon are due to hit the market at around the same time. Under such circumstances, how does the retail investor, with limited resources choose from the plethora of issues on offer? (See: )

A retail investor is defined by SEBI as one who invests up to Rs 50,000 in the market. Thus if the retail investor puts his money on IPCL, the first of the PSU issues to open, his money is stuck till he either receives an allotment or a refund. By that time, the other issues would have closed and the investor would have lost the chance to invest in these issues.

Though the government had roped in the best of investment bankers to advise it on these issues, in hind sight it looks like a case of bad management as far as timing of the issues are concerned. This could be a case of 'bad advice given and bad advice taken.'

Pricing was another issue which caused a lot of heart burn for all concerned. The secondary market is performing better than it has ever before and that has led to a phenomenal rise in not only the sensex stocks but also other secondary market stocks, including those of PSUs. Strictly speaking, the sale of these PSU stocks are not IPOs as portions of these stocks are already in the market. Thus the average price prevailing over the last six months could well have been the price fixed for this offer. However, the government and its advisors in their collective wisdom have chosen to adopt the bidding process by indicating a floor price, with a 5 per cent discount for the retail investor.

The floor price, which the government decided to fix, was the average of the last six month's price with a discount of 10 per cent. For example, if an investor who has already invested in the stock of one of these PSUs, whose price on the day of the floor price announcement was, lets say Rs 500, is now being offered the same share at Rs 450. Naturally, the investor would rather sell the existing holding at Rs 500 and buy it back at Rs 450 when the disinvestment opens. This would lead to selling pressure and a fall in the price of the stock.

This arbitrage happens in markets the world over. It is surprising how the financial advisors to the government failed to advise it about this pitfall when the pricing was being decided, unless they, their associates or clients, too, wanted to profit from an arbitraging opportunity. That apart, there could have been a cartel as alleged by Shourie, which was hammering down the prices to obtain the lowest floor price.

In the end, it was the government, which walked itself into a tight corner. Shourie, to his bewilderment saw that on the first day of the divestment, the IPCL share had been barely subscribed and the response to CMC was equally lacklustre while subscriptions to the IBP share was as good as zero. The second day followed the same pattern with subscriptions to IBP hovering around a measly 0.3 per cent.

That is when Shourie decided to play market regulator. He summoned the chairman of SEBI and asked him to be on 'high alert'. He met the Prime Minister and after receiving his support for taking on the so called troublemakers, he first gave a private tongue lashing to his advisors and then went ballistic in public about a bunch of operators who were hammering down the stock prices.

It worked.Two days later, all the issues were subscribed and the disinvestment process is now back on the rails.

For Shourie, it looks like a case of 'Alls well that ends well.' But is that really so? As admitted by Shourie himself, the retail investor is more confused today than he was before the issues opened and this is reflected in the poor retail response to these issues. Do they not have the right to know who manipulated the prices and how exactly were they being manipulated?

Shourie is known to be a person of integrity and sure the truth will be out after SEBI conducts a detailed study of the price movements. But by the time the study is complete, the ONGC isuue will be over and done with