Experts against 25% public stake in listed firms

The finance ministry's proposal to impose a mandatory limit of public holding in listed companies has evoked sharp reactions from experts, who feel that such a move would depress capital markets.

"The finance ministry's proposal will further depress the markets and not benefit retail investors," said investment analyst and resource person of Consumer Unity and Trust Society (CUTS) Jaisingh Kothari.

Expressing a similar opinion, senior partner of Titus and Co Advocates, Diljeet Titus said, "The proposal would affect more than 40 per cent of the companies who will be required to comply with a new set of regulations."

Managing director of Taurus Mutual Fund, R K Gupta, also felt that "it would be difficult for the companies to comply with the regulations as they cannot control sale-purchase of equity on the market."

The finance ministry has issued a discussion paper proposing a mandatory limit of 25 per cent of public holding in all listed companies.

The discussion paper also made a case of properly defining the word 'public' in the Securities Contracts Regulations Act, possibly by excluding institutional investors such as FIIs, financial institutions and mutual funds.

Meanwhile, apex association of public sector enterprises SCOPE today welcomed the Finance Ministry's proposal for making mandatory public holding of 25 per cent in listed companies, saying it will have a "sobering effect" on the market against any overheating.

"Enhanced public holding will not only enable a large shareholders' base for PSUs but also be the best cushion against overheating of the market by providing depth through a greater number of tradeable shares," S M Dewan, director general of Standing Conference on Public Enterprises, said.

Backing the idea floated by the finance ministry last Friday, Dewan said that the move, if accepted and executed, would help unlock the value of public sector, the single largest block on the bourses accounting for more than one-fifth of the total value in terms of market capitalisation of the listed companies.