TCS, Wipro, D-Mart Will Need To Shed Rs 88,000 Crore Under Govt. Pressure; Stock Market Panics, Lose Rs 34,000 Crore In Single Day

Amongst the multiple budget announcements declared by the new Finance Minister, Nirmala Sitharaman in her Budget speech on Friday, one major announcement was for the capital market regulator Securities and Exchange Board of India (SEBI) to increase the minimum public shareholding listed companies to 35% from 25% and to reduce the maximum promoter shareholding from the current level of 75% to 65%.

1,174 Listed Companies will Have to Dilute their Shares

Sitharaman, on Friday proposed that steps need to be taken to bring capital markets closer to the people, thus raising the threshold for minimum public shareholding from 25% to 35%. This will trigger a lot of enforced share sales. This means that the move is likely to inject liquidity in the stock market.

There are at present 1,174 listed companies, where promoters hold more than 65% of the company’s shares. Such companies include tech giants like TCS, Wipro and many other companies. In most of these companies, majority shares are held by their founders or private owners. The controlling shareholders would be concerned about diluting their shareholding and, therefore, their controlling rights.

About 25% of the entire universe of listed companies (4,700 companies) will have to go through off-loading promoter stakes to meet this requirement. 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.

There Will Be a Push-Back Against this Proposal

This move shall lead to more diversification and lesser manipulations. As of now, there is no news of how much time shall be given to these companies to meet with this minimum public shareholding norms, neither is there a timetable formed yet. We can expect that the regulator shall provide sufficient time for companies to meet this requirement, in such a way that markets aren’t over-flooded with stake sales by promoters.

According to the report, the top three companies in terms of quantum of sale would be TCS (Rs 59,600 crore), Wipro (Rs 15,000 crore) and D-mart ( Rs 14,000 crore). Maintaining a 25% public shareholding has already been difficult and increasing it to 35% will be challenging. Government holdings too, will be affected as 40 state-run companies have public shareholdings of less than 35%.

The measures to increases public shareholding from 25 per cent to 35 per cent is the biggest wealth shifting announcement in the interest of ordinary men.