The merchant bankers would advise the government on the timing and the modalities of the offer for sale (OFS) and ensure best return to the Government, the DoD said while inviting bids.
The Department of Disinvestment (DoD) will appoint up to five merchant bankers to manage the OFS and the bidders will have to submit bids by August 6.
At the current market price, a 5 per cent stake sale or over 42.77 crore shares would fetch about Rs 17,790 crore to the exchequer.
Shares of ONGC closed at 416.10, up 0.87 per cent on the BSE.
The government currently holds 68.94 per cent stake in ONGC.
Sources said the government feels the market sentiments are positive for ONGC stake sale and it is time to encash on the bull run in the markets.
The stock markets have rallied over 21 per cent so far this year.
The Department of Disinvestment have floated a Cabinet note for inter-ministerial consultation to take forward the ONGC stake sale.
The budget had proposed to raise Rs 43,425 crore from stake sale in public sector undertakings.
The government had sold 5 per cent stake in ONGC in 2012 for Rs 14,000 crore. Country's largest insurer LIC had then come to the rescue putting in over Rs 12,000 crore and picking up 95 per cent of the total shares on the block.