Budget 2019: Listed Companies To Maintain 35% Of Public Float

In her maiden Budget, presented on July 5, Finance Minister, Nirmala Sitharaman proposed several announcements in the interest of the common man. Among the many measures announced, the FM increased public shareholding from 25% to 35%. The proposed plan is the biggest wealth shifting announcement in the interest of common man, opined many market experts. Sitharaman pushed for increasing the float in the stock market by asking Sebi to consider increasing minimum public shareholding by 10% will increase the ownership amongst investors. 

“Historically speaking, India has been a promoter-driven market and increasing the threshold will ensure wider ownership through institutional investors, more market depth, better price discovery and hopefully will enhance the corporate governance standards,” said Yogesh Chande, Partner, Shardul Amarchand Mangaldas & Co.

However, many experts view this development as a major loss for the promoters who would have to reduce their shareholding to a great extent. “If Sebi decides to accept the recommendation, we will see a deluge of paper as ~167 companies in BSE 500 alone will need to reduce their promoter shareholding through issue of paper worth over Rs. 3.69 lakh crore. This will suck out liquidity from markets, and if most of these companies decide to meet the revised norms through sale of promoter shares, it will limit the availability of capital for issuers who want to raise growth capital,” said Munish Director Aggarwal,Capital Markets at Equirus Capital. 

Some experts claim that if the public shareholding is increased, then it will massively increase supply of paper in the markets. Further, the whole implementation required by promoters to reduce their stake in a time bound manner should have a good primary market and conducive secondary market. Commenting on the same, Shiv Diwan, Co-Head, Institutional Equities, Edelweiss Securities said, “Some quality companies may find it easier but will still be a bit of an overhang till the transaction happens.  Of-course one will have to wait and see the timelines given for this to be implemented. Some MNCs may want to explore options to delist their Indian listed subs. The only upside from this could be that there will be wider ownership in stocks through FIIs and other institutional investors and more market depth and liquidity.”