Market boom fails to cheer up retail investors

Retail investors are yet to benefit from the booming capital market, thanks to a dilution of the public float norms.

The Securities and Exchange Board of India's (Sebi) rules stipulate a public holding of 25 per cent of the paid-up capital of companies going public. However, the public holding norm is relaxed to 10 per cent if the size of the public offer is more than Rs 100 crore.

"Most large issues offer 10 per cent and definitely less than 25 per cent of the capital," said Prithvi Haldea, chairman and managing director of Prime Database.

The data of top-ten companies show that the public holding ranges from a meagre 0.87 per cent (Bharti Televentures) to 15.33 per cent (Infosys) and in six out of ten cases, it is less than 10 per cent.

On an aggregate, the public holding in these ten companies is only 8.8 per cent. In an ideal situation, the retail money could have been represented by mutual funds. Yet, they too have marginal holdings.

In the 10 companies, their share ranges from a paltry 0.36 per cent (Wipro) to 13.53 per cent (ITC). In nine out of ten cases, it is less than 10 per cent. On an aggregate basis, the share of mutual funds in the ten companies is only 1.74 per cent.

"In a country with a population of over 100 crore, we have, over the last 10 years, built a base of only 90 lakh investors as represented by demat accounts "� a mere 0.9 per cent.

The number of investors is actually lower because of the incidence of multiple or benami applications," said Haldea.

"This leads to market prices going through the roof and hence market capitalisation of promoters (only marginally of investors) goes up as the retail allocation is 35 per cent of the 10 per cent that is diluted when an IPO is floated," he explained.

Haldea called for the need to increase the float size with a threshold being Rs 250-300 crore from Rs 100 crore, adding that reservation for retail investors should go up to at least 50 per cent.