Finance Minister Nirmala Sitharaman in her Budget speech on Friday asked capital market regulator Securities and Exchange Board of India (Sebi) to consider reducing the maximum promoter shareholding from the current level of 75 per cent to 65 per cent. This means that the minimum public shareholding for listed companies has to be increased from current level of 25 per cent to 35 per cent.
According to market experts, the move is likely to inject liquidity in the stock market and help in reducing manipulation.
"Implementation of this idea would require promoters to reduce their stake in a time bound manner and for this purpose, having a good primary market and conducive secondary market would be essential," said Nitesh Mehta, Partner/ Transaction Tax, Tax & Regulatory Services.
If Sebi follows the government proposal, many MNCs and IT companies with high promoter shareholding will have to meet the requirement. There are 1,174 listed companies where promoters holding are over 65 per cent stake, said Jagannadham Thunuguntla, Senior Vice President and Head of Research (Wealth), Centrum Broking. The promoters of these three companies will have to sell stake worth Rs 88,600 crore.
"To put in other words, 25 per cent of the entire universe of listed companies (nearly 4,700 companies) will have to go through off-loading promoter stakes to meet this requirement," Thunuguntla said.
At the current market prices, the total quantum of sale that needs to be done by these 1,174 companies works out to be about Rs 3,87,000 crore, he said. The top three companies in terms of quantum of sale would be Tata Consultancy Services (Rs 59,600 crore), Wipro (Rs 15,000 crore) and Avenue Supermarts (Rs 14,000 crore), which owns and operates D-Mart supermarket chain.
"While we need to await SEBI regulations regarding how much time will be given to these companies to meet with this minimum public shareholding norm, the overhang of this requirement of off-loading of promoter shareholding can have significant impact on the markets and the specific stocks. The regulator needs to provide sufficient time to meet this requirement so as not to over-flood the markets with stake sales by promoters," Thunuguntla said.