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The government owns 80 per cent stake in SAIL, India's second largest steel manufacturer by market value. The floor price for the share auction was set at Rs 83 rupees apiece.
The 5 per cent stake sale is part of the government's divestment programme to raise Rs 58,000 crore in the fiscal year ending in March 2015.
The government is likely to miss that privatization target, partly because of resistance from staff unions, and despite a big stock market rally that has attracted foreign investors.
The government has so far raised Rs 51.8 crore, less than one thousandth of its target, by selling some of its shares to employees of two state companies, and not to institutional and retail investors.
The budget assumes that sell-off proceeds will generate 5.6 per cent of total revenues.
The government has set an ambitious fiscal deficit target of 4.1 per cent of gross domestic product in the fiscal year to March.
Investors' response to the SAIL stake sale will be crucial for the government to gauge investor appetite ahead of the planned sale of a 10 per cent stake in Coal India and a 5 per cent stake in Oil and Natural Gas Corp.
The Coal India and ONGC stake sales should help the government raise a combined 40,000 crore, as per the current market prices.
Most state-run companies have underperformed the broader markets despite a record rally this year. SAIL shares have risen just 18 per cent this year, lagging a near 36 per cent rise in the Sensex.
The government's plans to raise Rs 15,000 crore by selling its minority stakes in Hindustan Zinc and BALCO face a legal challenge from trade unions that have gone to the Supreme Court. (With inputs from Reuters)