Few companies meet 25% ‘public’ stake limit

Indian primary stock market, presently facing poor investors responses could be flooded with fresh issues if the Government’s proposal for a minimum 25% public holding is implemented in one go because the average individuals’ holding is mere 1.8% in PSUs and that of 13.56% in private sector, an ASSOCHAM Eco Pulse (AEP) study has revealed.

An analysis of Nifty and Sensex companies done by the industry chamber has found out that while 94% of them already satisfy the minimum 25% of non promoter shareholding criteria along with holdings of qualified institutional bodies, only a handful meet the ‘public’ quota as proposed by the Finance Ministry.

If the share of FIs, FIIs, MFs, Employees, NRIs/OCBs, Private Corporate Bodies is kept out from the non-promoters, the average individuals' holding is far below the limit under the amendments in the Securities Contracts (Regulation) Rules, 1957 (SCRR). "Implementation of the proposed changes in the Act, will lead to a huge flow of IPOs and Follow-on offers by a large number of companies into the primary markets," says Venugopal Dhoot, President of ASSOCHAM.

The Study has revealed that only two companies among Sensex and Nifty scrips satisfy the proposed criteria of 25% of ‘public’ shareholding- Bajaj Auto and Larsen & Tourbo with a share of 27.7% and 35.5% respectively. In majority of the companies, FIIs occupy the maximum share of non-promoter holdings which fall in a range of 60% to 40%.

They are followed by insurance companies with a range of 20% to 5% and mutual funds ranging between 3% to 1%. Interestingly, the average individual shareholding of the public sector companies is only 1.81% which is far less than the average individual’s share of 13.56% in the private sector companies. Among the Sensex firms, the average retail shareholding was estimated by the AEP to be 11.89 per cent and 10.08 per cent among the Nifty companies.

The Finance Ministry has proposed raising the ‘public’ shareholding limit for listed companies from the existing 10% to at least 25% in a move to encourage more public participation, transparency and overall governance in the market. With the implementation of proposed changes in the Act, the listed firms will have to dilute their shares within a period of three months.

If the proposal is implemented in one go, public sector companies will have to shed their promoter’s stake like BHEL with the least percentage of ‘public’ shareholding of 0.37%, ONGC with a share of 1.99%, NTPC (2.03%) and SBI at 2.86%.

The phenomenon is not restricted to public sector companies alone. Even private sector companies would have to dilute their equity to stay listed on the stock exchange. Bharti Airtel with the least percentage of the individual shareholding would have to dilute 23.65% of its promoter’s stake. Maruti Suzuki and TCS would have to follow the suit having a very small percentage of Individual shareholding of 2.46% and 5.34% respectively.

The study also found that promoters of the company own over 70-80% stake in most of the energy, IT and telecom companies like TCS (77.78%), Wipro (79.50%), Reliance Petroleum (75.38%), ONGC (74.14%), NTPC (89.50%).