The India Infrastructure Report has asked for a code of ethics on statement by politicians and bureaucrats on divestment issues, to check wild swings in prices of PSUs in stock markets.

The Report has examined the impact of such statements on the price movements of HPCL stock and concluded that even as Securities and Exchange Board of India has been attempting to check insider trading by others, such statements are destroying the integrity of the Indian stock market.

The Divestment Development: Complete Coverage

It says that on four out of the five highest excess return days for HPCL in the past two years, when it has been on the block for divestment, the stock prices gyrated because of significant political comments on it.

It adds that it would have be therefore possible for someone who got information early to take a potentially profitable stance in the market based on the information. On an ominous note it adds "it is a moot point whether someone indeed benefitted from the information being available to him before it became public".

The other example quoted by the report is that of return of equity by public sector banks. Towards the end of May 2003, the prices of the public sector bank scrips yo-yoed, based on the apparent flip-flop that was reportedly done by the finance ministry officials regarding the issue.

Huge amount of money was made as two contrary views did the round of the markets. It says that though the finance minister ordered an enquiry by Sebi to determine the possible involvement of his ministry's officials, it is unlikely that any foolproof evidence will be unearthed.

It adds that while the episode was bad enough, the government was yet to make up its mind on how the equity was to be returned.

To bring transparency to the divestment process the India Infrastructure Report has said that a law describing the objectives and mode of privatisation was necessary. It says if the divestment ministry was keen on a fair and orderly process it should have a strong incentive to do so.

It is not the business of the government to micro manage the divestment process. It has also argued that further cut in the fiscal deficit is not desirable and instead there should be a massive privatisation.