Budget 2019: Shares of many MNCs likely to be hit with proposal to increase public shareholding

Union Budget 2019 India: There are 1,101 companies on Union Budget 2019 India: BSE, enjoying promoter holding of more than 65%.

Written by Yoosef KP

July 6, 2019 02:58 IST

Budget 2019-20: As many as 167 companies from the BSE500 universe would be asked to dilute founder’s stake, if the proposal gets through.

Budget 2019 India: If the markets regulator Sebi goes ahead with the proposal to increase public shareholding in listed companies to 35%, shares of many MNCs and companies with high promoter shareholding could see some negative action. Currently, there are 1,101 companies on BSE, which enjoy promoter holding of more than 65%, data sourced from Capitaline showed. The market value of stocks which may need to be diluted amounted to Rs 3.96 lakh crore or 8.9% as of Friday’s close.

As many as 167 companies from the BSE500 universe would be asked to dilute founder’s stake, if the proposal gets through. The broader BSE 500 index, which represents nearly 93% of the nation’s market capitalisation, covers all 20 major industries of the economy. Companies that may be required to dilute their stake include Tata Consultancy Services, Wipro, Avenue Supermarts, Bandhan Bank, HDFC Life Insurance, IDBI Bank and Coal India.

It has to be noted that newly listed companies were given a grace period of three years to bring down their promoter’s holding. According to the Sebi rules, a company has to bring down its public share holding to 25% within three years of listing.

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Companies from MNCs, banks and IT will be among the worst hit. Most MNCs which are listed on Indian bourses are thin traded because of their heavy parent holding. While MNCs like Hinudstan Uniliver will have to reduce its holding by 2.2% to comply the proposal, Siemens and ABB will have to reduce 10% each.

Market participants observe that many MNCs listed on Indian bourses may consider de-listing, if increase in public shareholding is implemented. Top five companies — TCS, Wipro, Avenue Supermarts, Bandhan Bank and HDFC Life Insurance — would be required to dilute shares worth `1.11 lakh crore on the implementation of proposal.

The minimum public shareholding requirement of 25% was introduced in 2010 for all non-public sector undertakings, which were given three years’ time to adhere to the new rule. It was made mandatory for PSUs in 2014.