New Delhi: The government has asked market regulator Sebi to look at raising the minimum public shareholding level in listed companies to 35 per cent from the current 25 per cent, Finance Minister Nirmala Sitharaman said on Friday.
Presenting the Union Budget 2019-20 in Parliament, Sitharaman said: "We have asked Sebi (Securities and Exchange Board of India) to examinine raising the minimum public shareholding to 35 per cent from the current 25 per cent."
Once tasked, Sebi will have to give a time frame for this to the companies. The proposal to increase the minimum threshold for public shareholding in listed companies is set to be an overhang for the shares of some prominent technology companies, including Tata Consultancy Services and Wipro, said analysts.
Promoters of TCS, Wipro, Larsen & Toubro Infotech and L&T Technology Services currently hold 72-75% stake in these companies, and they will be under pressure to sell shares of the respective companies to conform with the 65% cut-off outlined in the Budget.
“We believe the consequent pressure on...these entities to meet the new promoter shareholding norm would keep the respective stocks under pressure,” brokerage Edelweiss Securities said.
In response, shares of Wipro and TCS ended 3-4% lower on the NSE. Shares of L&T Infotech and L&T Technology Services, though, ended with marginal gains.
In the long run, however, analysts believe that the move is a positive one because it will help institutional investors get hold of these shares without pushing up prices aggressively.
This proposal is aimed at increasing liquidity in the stock markets and reduce share price manipulation. While the Indian market has largely been promoter-driven, a mandatory increase in public shareholding will help deepening of the bourses.
This will help in tighter corporate governance, which has been slipping as evident from many recent cases. With disclosures being mandatory, such a move will also help protect investors and improve the corporate governance. Moreover, increase in the minimum public shareholding will bring in more liquidity and close off the avenues for price manipulation.
On the other hand, such a move will affect public sector banks (PSBs) in many of which the government shareholding is even higher than Sebi's current limit of 75 per cent. Repeated recapitalisation of PSBs in recent times has pushed up the government stake in state-run banks.