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A higher minimum public shareholding

Author: Krishnadas Saiju, final year student at National University of Advanced Legal Studies, Kochi.


The Union Budget demonstrated the plethora of changes the Government plans to make in the regulatory and capital market sector. One of the proposals notably included the raising the threshold for a minimum public shareholding in the listed companies from 25% to 35%. Regulation 38 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations require a listed entity to comply with the minimum public shareholding requirements as specified in rule 19(2) and rule 19A of the Securities Contracts (Regulation) Rules, 1957 (“SCRR”). However, this provision does not apply to entities listed on the Institutional Trading Platform, without making a public issue. Clause (b) of sub-rule (2) of rule 19 of the SCRR lays down limits of minimum offer and allotment to the public and rule 19A lays down the requirement of maintaining minimum public shareholding at twenty-five per cent.

Implications on market liquidity

This proposal, if implemented, can reduce the potential liquidity in the market as organizations with higher promoter owning may have to raise funds vis-a-vis Follow on Public Offers and Qualified Institutional Placements. The other option will be to delist the company in case the aforementioned methods do not meet the required threshold or if the owners do not want such levels of public shareholding. On the other hand, this could lead to better price discovery and is advantageous for minority shareholders. Data shows that around 1700 listed companies will have to dilute their stakes to meet this requirement, which comprises 25% of the roost.


While the time for fulfilling such requirements aren’t stated, it is imperative that the regulator provides reasonable time for this move so as to not cause a rush in stock sales. An increase in public participation could increase the free floats in a coming couple of years and shall become more BFSI (Banking, Financial Services and Insurance) and consumption-oriented unless caps are brought in place. Promoters tend to influence the verdict whenever special resolutions are moved. If their shareholding moves down, public shareholders will have a relatively larger say in such resolutions. Besides, raising public holding to 35 per cent will lead to a supply of high-quality papers in the market and will provide an excellent opportunity for investors waiting on sidelines for further investment in stocks. It is usually the promoters that make key decisions as they have control stake in companies but a change to this policy shall empower the public in influencing these decisions, which on the flip side could stifle the goal of the promoters. The proposal if implemented could lead to a change in hands of wealth from promoters and big investors to the public.

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