The equity sale which will help the government to reduce the fiscal burden has led to a sharp erosion in the value of shares held by the investors -- mainly the government itself which holds a major chunk of shares in oil companies.

The share price of Indian Oil Corporation, the largest company in India in terms of sales, has fallen by nearly 30 per cent from Rs 427 on January 1 to Rs 307.50 on Friday. Similarly ONGC has dipped to Rs 138.90 from Rs 202.60 and GAIL to Rs 59 from Rs 83.70. Even companies which are not included in the share swap list like Hindustan Petroleum and Bharat Petroleum are being hammered by market operators who suspect similar moves in other companies.Hindustan Petroleum has declined to Rs 191.70 from Rs 232.50 and BharatPetroleum to Rs 209.90 from Rs 231.20 in the last one month. ``The market did not like the idea of the government generating revenue by selling its stake in this manner. The government will be able to show better budget figures. But the companies will have to pay the price for this exercise.

Their reserves will be depleted,'' said an analyst with a leading broking firm. Another investor complained that small investors are being sacrificed by the government in its eagerness to cover up its fiscal imprudence.On the other hand, Sensex has remained steady in the last one month. While Sensex closed at 3337 on Friday, it was 3353 a month ago. Even most of the leading shares in the A group of the Bombay Stock Exchange (BSE) also remained in the same range. In fact, pharmaceutical, software and multinational stocks have gained ground, thanks to heavy buying by foreign funds and local operators.

The drop in market capitalisation (total market value of all listed shares) in the case of Indian Oil alone works outto Rs 4,668 crore. Around 10 per cent of Indian Oil's equity capital of Rs 389 crore is listed on the stock market. The market cap of this equity holding which was Rs 16,610 crore in the beginning of January has now crashed to Rs 11,942 crore by Friday.Similarly, the market caps of ONGC, GAIL, HPCL and BPCL have also declined, indicating a major erosion in the wealth of investors.

Analysts feel the financial position of oil companies will weaken after the proposed equity swap. ``If you look at their balance sheets, oil companies look very rich. But they have their own expansion plans. From the way the whole exercise is being done it appears the oil companies are arm-twisted to shell out funds through this share swap. On top of this, the government is going to lose out again following the dip in the share prices,'' said an analyst.

The government had earlier planned to raise around Rs 5,000 through the buyback of shares in these oil companies. However, it was found very cumbersome and later dropped theplan. In the buyback route, the company will have to entertain applications from small investors and the government cannot be given any exclusive treatment.

As per the current plan, the government has decided on a 10 per cent disinvestment in Indian Oil and GAIL and a 12.5 per cent divestment of shares in ONGC, allowing the oil companies to swap equity among themselves.Indian Oil will buy 10 per cent equity in ONGC and five per cent equity in GAIL. ONGC will buy 10 per cent equity in Indian Oil and pick up a five per cent stake in GAIL. GAIL will pick up a 2.5 per cent stake in ONGC.