The budget proposal to consider raising minimum public shareholding in the listed companies
Mumbai, July 5: The budget proposal to consider raising minimum public shareholding in the listed companies from the current 25% to 35% is expected to prove biggest negative dampner for the stock markets in the days to come. This will not only create pressure on the secondary market but will also play a significant role in the flight of multi-national companies (MNCs) listed on Indian bourses to delist their firms and flee away, opined the market experts.
Finance Minister, Nirmala Sitaraman while presenting her maiden budget proposed that, “It is right time to consider increasing minimum public shareholding in the listed companies. I have asked the Securities and Exchange Board of India (Sebi) to consider raising the current threshold of 25% to 35%.
While reacting to FM’s proposal, Amar Ambani, President & Research Head, YES Securities said, “This proposal is going to prove negative for MNC and companies with high promoters holding. In many mid and small caps, it is better to have more promoter skin in the game, since India's capital market is in developing phase. Many MNCs listed on Indian bourses may consider delisting, if increased public shareholding is implemented. This will create supply of paper in the market to increase. This will mean that money will be sucked out of secondary market and valuations will remain under check.
He said another proposal of keeping high disinvestment target of Rs 1.05 lakh crore will also impact the secondary market negatively as this, along with the increased public shareholding proposal will together squeeze liquidity from secondary market.
A study by KR Choksey Research, a brokerage firm, suggests 167 companies in the BSE 500 have 35% or less public share holdings. These companies have a combined market capitalisation (M-Cap) of Rs 41.31 lakh crore. Diluting stake in these companies to meet the proposal would require dilution of Rs 3.69 lakh crore, it said. The brokerage said that if the proposal is implemented it will also result in higher LTCG tax.
"Fine print of the budget should be read the credit taken under LTCG and also the timeline to bring it down. Overall it should result in selling of stocks. Watch out the richly valued MNC stocks, whose valuations may come under check, if they have to part with their holdings," KRChoksey Research said.
Among the Nifty 50 companies, five companies, Wipro (73.90%), TCS (72.10%), Coal India (71%) and Hindustan Unilever (67.2%) and Bharti Airtel (67.1%) have promoter holding in excess of 65% as of March 31, 2019. Rough estimates suggest that if these firms were to meet the 35% public shareholding, they may need to sell shares worth Rs 1 lakh crore, analysts said.
On the other hand, there are 40 PSUs with public holding lower than 35%. Of them 28 still needs to pare down promoter stake to meet earlier guidelines, they pointed out.