The government has notified rules asking all listed companies to ensure minimum public shareholding of 25%. This is likely to increase opportunities available to investors to benefit from steady growth of Indian economy. According to a report by rating firm Crisil Ltd, there are 179 listed companies that have a public shareholding of less than 25% as of today, the prominent amongst them being: NMDC (10%), Nalco (13%), Power Grid Corp (14%), SAIL (14%), NTPC (15%). Some prominent private sector companies like Reliance Power and Wipro also fall in the same catagory.
The new rules said companies could meet the 25% norm in phases, they would have to add 5% every year to public holdings till it reaches 25%. Uniform listing requirements for all companies, including state-owned ones, could trigger a lot of activity in the primary market. The markets could see fresh paper supply over the next 12 months to the tune of over Rs58,000 crore from BSE 500 companies. The markets should be able to absorb this supply given the current liquidity conditions. But if liquidity conditions turn unfavourable, due to global problems, it could put pressure on the Indain secondary market. Experts believe that an increase in the public holding of stocks typically increases liquidity and helps in better price discovery.
With the June 4 notification of the Securities Contracts (Regulation) (Amendment) Rules, 2010, at least three private sector firms that had initial public offerings last fiscal will have to hit the market again this year. Mahindra Holidays and Resorts India Ltd, DB Corp Ltd and Godrej Properties Ltd all have promoter holdings of 80% or more and will have to go to the market again before March 2011. Real estate firms dominate the list of companies that need to dilute shareholding, the bigger names amongst them are: Puravankara Projects Ltd, Omaxe Ltd and DLF Ltd. It seems to be a good opportunity for investors to increase their stakes in these blue chip companies, provivded the issues are priced attractively. There may be many companies that currently have a lesser public shareholding, choosing to get delisted rather than increasing their public shareholding further, the government would have to spell out the guidelines for their delisting under such circumstances.
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