A Study on Ownership Concentration in Indian Companies

The shareholding pattern of Indian
companies has been the subject matter of academic studies, which have
consistently shown that Indian companies are controlled substantially by controlling
shareholders (or promoters) who hold a significant percentage of shares in
public listed companies. The promoters range from business families to the
state and to multinational corporations (MNCs). For a sampling (only) of
previous studies, please see Rajesh
, Shaun Mathew
and George
A more recent study examines the
ownership concentration levels over the last decade. In their paper “Ownership Trends in Corporate India
2001-2011: Evidence and Implications
” (available on the NSE
Working Paper Series
or on SSRN),
Professor Bala N. Balasubramanian and Mr. R. V. Anand undertake a detailed
empirical survey. The abstract of their paper is as follows:
The first decade
of the new millennium saw dramatic changes in the ownership patterns in major
listed corporations in India. Two developments were striking: promoters,
especially in the domestic private sector, bolstered up their holdings to
ensure continued entrenchment; and institutional investors significantly
increased their holdings, especially in the private sector
management-controlled companies segment. In both cases, these increases were
achieved at the cost of retail non-institutional shareholders, whose holdings
correspondingly recorded a steep fall. This paper documents this evidence,
seeks to identify their underlying rationale, and assesses their implications
for corporate equity investment and governance in the country.
The findings in this paper are important.
On the one hand, SEBI’s efforts have been focused on creating a diversification
of shareholding in the markets. Its regulations on mandating a minimum public
float of 25% (10% for government-owned companies), which it has stringently
enforced, is representative of this regulatory approach. More generally, the continued
strengthening of the regulatory framework (both substantive law and its
enforcement) has been with a view to enhance investor protection so as to
enable more investors to participate in the stock markets. However, the
empirical findings in the above paper point in the diametrically opposite
direction. Ownership levels are becoming more concentrated than diffused,
thereby defying the theory that better investor protection will result in
greater dispersed shareholding by a larger number of investors. Moreover,
retail investors do not seem to have gathered the requisite confidence in
increasing their direct participation in the stock markets. While these
findings are focused on ownership concentration trends in Indian companies,
they may have a broader story to tell about the effectiveness of securities
regulation, investor protection measures and corporate governance.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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