Promoters' holding up, investors lose out

The percentage of overall public shareholding in Indian listed companies is declining steadily, courtesy a rule which allows Indian promoters to dilute a nominal 10-15 per cent of their stake through initial public offers (IPOs), if the share offerings are Rs 100 crore or above.

With the stock markets growing in size, this rule, which was framed eight years back, needs revision to allow such nominal dilution only if the IPOs are worth Rs 500 crore or above, according to experts. The rules require promoters to shed at least 25 per cent if the IPOs are less than Rs 100 crore.

The promoter holding in 500 listed companies has gone up to 58 per cent during the July-September quarter from 54 per cent in the April-June quarter. In contrast, the share of retail investors has slipped from 10 per cent to 9.2 per cent during this quarter, according to a Citigroup study.

The share of foreign investors also dropped from 22 per cent to 20 per cent during the second quarter, while the mutual funds' holding declined to 3.7 per cent from 4.30 per cent, said the study.

"Now, most of the IPOs are above Rs 100 crore. What was relevant eight years back is no longer valid. The rules require an upward revision," said Prithvi Haldea, managing director of Prime Database, which tracks the fund raisings by India Inc.

"This also creates an unhealthy concentration of shares with promoters," he added.

Some of the recent issues include Religare (promoter dilution of 10 per cent), Edelweiss Capital (11.19 per cent), Koutons Retail (11.54 per cent), Motilal Oswal Financial (10.30 per cent), Omaxe (11.20 per cent), HDIL (13.93 per cent), DLF (10.26 per cent), Spice Communications (16.39 per cent), Idea Cellular (12.36 per cent), Akruti Nirman (10.04 per cent) and Mindtree Consulting (13 per cent).

Most of the issues were subscribed many times over (some even over 100 times) following large bids by foreign investors and domestic houses for a small stake on offer.

While offloading of a small stake has increased the overall promoter holding in the Indian companies substantially, brokers said this results in a brazen rise in share prices on listing.

"Post issue, those large investors who have not been able to acquire desired shares try to buy from open market and since the liquidity is less, the share price skyrockets in no time," said a local broker.

Independent equity advisor S P Tulsian thinks that, with the economy going strong, promoters do not want to dilute too much stake.

"Apart from sheer confidence in their projects, they (promoters) are also sure about executing private placements at still better valuations," he said.