At a panel discussion on "Capital market route for privatising PSUs" in the Securities Industry Summit, 1998, top investment bankers urged the government to get on with the task of disinvestment of Indian PSUs.

According to Shaun Browne, chief executive officer, HSBC Capital Markets, the Indian government believed, probably not correctly, that the GDR route is the preferred route as one can get a better price through this route. He suggested a discount of about 20-25 per to the market price in the domestic market. In disinvesting through the domestic market, India stands to gain by reducing reliance on FIIs. "While it is good to encourage FIIs one must not overdo it", said Browne. In addition, thiswould also lead to providing a viable alternative to the GDR route, revitalise the Indian capital markets, create local liquidity but more importantly the "Indian assets will be sold to Indian citizens".

The disadvantages on the other hand, would be primarily that the stock may not realise a high premium. "But the price alone should not be the government's focus. By offering equity at a low price would lead to investors flocking the disinvestment issues consistently which would lead to a far greater benefit in the long run", said Browne.

Shitin Desai, vice-chairman of DSP Merrill Lynch Ltd, went a step forward and said that Indian PSUs belong to Indians and even if they are offered cheap to them what is wrong. "If we don't develop the Indian capital market, we will see an export of the Indian market in the next five years and will be driven by foreign investors", said Desai.

As regards the pricing, Desai said that "the right price is what someone is willing to pay and a bureacrat can't decide this rightprice". He blamed SEBI for having allowed almost a 1,000 merchant bankers to register with it and it were these merchant bankers which took gullible investors for a ride leading to the current state of the market.

Euan Macdonald, chairman (India), SBC Warburg, said that selling shares to the Indian inhabitants is the correct step and in fact in some countries have allotted disinvestment shares to investors free of charge. "The price is not terribly important as is encouraging the development of the domestic capital markets", said Macdonald.

KR Bharat, managing director, Credit Suisse First Boston, said that the right price is not the issue but the right approach is the key. "The government is to blame as for the past three years it has talked of privatisation of PSUs but not done much. Once the decision to disinvest has been taken, the company and the disinvestment commission should decide how to go about it", he said.

SEBI executive director incharge of primary markets, Vijay Ranjan, said that theregulator has for long been stressing on disinvestment through the domestic route. He said that the regulator had some concerns about lack of information flow and credibility of accounts in case of a PSU. "We have told the government on occasions that it may not be possible for some PSUs to fulfil our requirements for coming out with a domestic issue", said Ranjan. He admitted that SEBI was partly to blame for the current state of the market but this was partly because the merchant bankers that it trusted and regulated let investors down.