Union Budget 2019: Nirmala Sitharaman plans biggest transfer of wealth
Mumbai: Shares of companies where promoters’ shareholding is more than 65 per cent fell sharply as finance minister Nirmala Sitharaman in her Budget speech said that it was time to increase public float to 35 per cent from 25 per cent.
“It is the right time to consider increasing the minimum public shareholding in the listed companies. I have asked Sebi to consider raising the current threshold of 25 per cent to 35 per cent,” Ms Sitharaman said.
The market reacted immediately to the announcement leading to sharp fall in target companies with promoter holding above 65 per cent like Tata Consultancy Services (-3.61 per cent), Wipro (-4.21 per cent), Avenue Supermart (5.35 per cent), HDFC Life Insurance Company (-2.94 per cent), Siemens (-7.18 per cent), Oberoi Realty (-6.44 per cent) among others.
According to K. R. Choksey research, “There are 167 companies in BSE 500 are currently listed at 35 per cent or less public shareholdings. Their current market capitalisation is Rs 41.31 lakh crores and additional liquidity required will be Rs 3.69 lakh crore to bring down promoter shareholding at current market price.”
Deven Choksey, managing director, K.R. Choksey shares & securities said, “Assuming that the selling will happen to bring down promoters holding to 65 per cent, it will result in higher long term capital gains (LTCG) tax. Overall it should result in the selling of stocks, the richly valued MNC stocks, whose valuations may come under check if they have to part with their holdings.”
However, it will be good for the equity market with investors chasing just a handful of quality companies, analysts said.
Jimeet Modi, founder & CEO, Samco Securities said, “The move to increase public shareholding in companies from 25 per cent to 35 per cent, this is probably the biggest wealth transferring move in the interest of larger good of the country, but from the stock market perspective there will be the overhang of supply and markets at large will face the repercussions. This will change the demand-supply equation in the capital markets and a number of large cap companies with a high promoter shareholding will face the brunt.”
Navneet Munot, chief inv-estment officer, SBI Mutual Fund said, “The suggestion to Sebi to increase float to 35 per cent from 25 per cent will cause a high supply of stock but may also increase India’s weight in the global indices.”
However, multinational companies may not like it as they would have to forego huge dividend payout garnered by them as well as mid- and small-cap companies where control by promoters will reduce.
Romesh Tiwari, head of Research, CapitalAim said, “Raising minimum public shareholding norms will be negative for several MNC companies who run a closely managed business and reduce the “skin in the game” factor for the promoters of mid and small cap companies. For markets, it may suck the liquidity by making more floating stocks in secondary markets.”
