That concentration of shareholdings
in public listed companies is the norm is beyond doubt. At the same time,
studies have been seeking to ascertain the level of shareholdings held by
controlling shareholders (or promoters). Some such studies are set out below:
in public listed companies is the norm is beyond doubt. At the same time,
studies have been seeking to ascertain the level of shareholdings held by
controlling shareholders (or promoters). Some such studies are set out below:
(a) A study by Rajesh Chakrabarti shows average
promoter shareholdings in Indian companies in 2002 to be at 48.1%;
promoter shareholdings in Indian companies in 2002 to be at 48.1%;
(b) Shaun
Mathew’s 2007 study found that the average promoter stake in the top 100
companies listed on the Stock Exchange, Mumbai (also known as BSE) was 48.09%,
while in the top 500 listed companies it was 49.55%.
Mathew’s 2007 study found that the average promoter stake in the top 100
companies listed on the Stock Exchange, Mumbai (also known as BSE) was 48.09%,
while in the top 500 listed companies it was 49.55%.
(c) A later longitudinal study by Balasubramanian
and Anand of shareholding patterns in Indian companies during the period
2001 to 2011 evidences that the trend is in the direction of more concentration
rather than dispersion. They find “empirical confirmation of the predominance
of concentrated ownership and control in corporate India. Not only that but
also the extent of such concentration over the years was increasing.” They find
that the median holdings of promoters in the top 50 companies had risen from
42.94% in 2001 to 56.24% in 2011, and in the top 100 companies from 48.83% to
54.21%.
and Anand of shareholding patterns in Indian companies during the period
2001 to 2011 evidences that the trend is in the direction of more concentration
rather than dispersion. They find “empirical confirmation of the predominance
of concentrated ownership and control in corporate India. Not only that but
also the extent of such concentration over the years was increasing.” They find
that the median holdings of promoters in the top 50 companies had risen from
42.94% in 2001 to 56.24% in 2011, and in the top 100 companies from 48.83% to
54.21%.
However, more recent studies indicate
the loosening of concentration among promoters in that there has been dilution
in their stake. Today’s
Business Standard has a report based on promoters’ shareholding in private
sector BSE 500 companies. The following extracts elaborate:
the loosening of concentration among promoters in that there has been dilution
in their stake. Today’s
Business Standard has a report based on promoters’ shareholding in private
sector BSE 500 companies. The following extracts elaborate:
There has been a
steady decline in promoters’ holding in Indian private sector companies to an
eight-year low of 43.4 per cent at the end of September 2015. The corresponding
ratio was 44.4 per cent a year ago and 48.7 per cent at its peak in the March
2008 quarter.
steady decline in promoters’ holding in Indian private sector companies to an
eight-year low of 43.4 per cent at the end of September 2015. The corresponding
ratio was 44.4 per cent a year ago and 48.7 per cent at its peak in the March
2008 quarter.
A similar trend is
visible in the public sector undertakings (PSUs) with a consistent decline in
promoters’ (government) holding as the government pursues divestment. Effective
promoter holding in PSUs is down nearly 750 basis points or around 10 per cent
in the past decade to 67.1 per cent at the end of the last quarter from an
average holding of around 75 per cent in 2005.
visible in the public sector undertakings (PSUs) with a consistent decline in
promoters’ (government) holding as the government pursues divestment. Effective
promoter holding in PSUs is down nearly 750 basis points or around 10 per cent
in the past decade to 67.1 per cent at the end of the last quarter from an
average holding of around 75 per cent in 2005.
The report also states that while
there has been a reduction in domestic promoter shareholding, a reverse trend
is evident among promoters that are multinationals as they have sought to
bolster shareholdings in their Indian listed subsidiaries.
there has been a reduction in domestic promoter shareholding, a reverse trend
is evident among promoters that are multinationals as they have sought to
bolster shareholdings in their Indian listed subsidiaries.
The above report proffers several
economic and business reasons for this phenomenon. These include dilution on
account of capital constraints and the need for external equity financing of
Indian companies, which have been accomplished through offerings such as
qualified institutional placements (QIPs), and also stake sales by Indian
promoters.
economic and business reasons for this phenomenon. These include dilution on
account of capital constraints and the need for external equity financing of
Indian companies, which have been accomplished through offerings such as
qualified institutional placements (QIPs), and also stake sales by Indian
promoters.
In another study, I tested claims relating
to shareholding concentration in a current context by analysing the
shareholding pattern of Indian companies as of 31 March 2015, by gathering data
on shareholding pattern of several companies listed on the National Stock
Exchange of India Limited (NSE). Under regulations prescribed by SEBI, listed
companies are required to periodically file their shareholding pattern with the
exchanges indicating, among other things, the percentage of promoter
shareholding. I examined the shareholding data for companies within three
well-known indices:
to shareholding concentration in a current context by analysing the
shareholding pattern of Indian companies as of 31 March 2015, by gathering data
on shareholding pattern of several companies listed on the National Stock
Exchange of India Limited (NSE). Under regulations prescribed by SEBI, listed
companies are required to periodically file their shareholding pattern with the
exchanges indicating, among other things, the percentage of promoter
shareholding. I examined the shareholding data for companies within three
well-known indices:
(i)
the CNX Nifty, a well diversified
50 stock index accounting for 23 sectors of the economy and representing about
66.17% of the free float market capitalization of stocks listed on the NSE;
the CNX Nifty, a well diversified
50 stock index accounting for 23 sectors of the economy and representing about
66.17% of the free float market capitalization of stocks listed on the NSE;
(ii)
the CNX 100, a diversified 100 stock
index accounting for 38 sectors of the economy and representing about 78.57% of
the free float market capitalization of stocks listed on the NSE; and
the CNX 100, a diversified 100 stock
index accounting for 38 sectors of the economy and representing about 78.57% of
the free float market capitalization of stocks listed on the NSE; and
(iii) the CNX 500, a broad based benchmark of
the Indian capital market and representing about 95.77% of the free float market
capitalization of stocks listed on the NSE.
the Indian capital market and representing about 95.77% of the free float market
capitalization of stocks listed on the NSE.
Based
on this study, the summary results are as follows:
on this study, the summary results are as follows:
Promoter Shareholding Data as of 31 March 2015
|
Parameters for Analysis
|
CNX Nifty
|
CNX 100
|
CNX 500
|
|
Average Promoter Shareholding
|
49.22%
|
52.17%
|
54.62%
|
|
Median Promoter Shareholding
|
49.77%
|
52.36%
|
54.88%
|
Unlike the Business Standard
report, which takes into account private sector companies separately, my study
represents a combined analysis of different types of controlling shareholders
(i.e. business families, state and multinational companies). The shareholding
concentration is less among the top 50 companies, but as the sample size
increases the level of concentration increases as well. This suggests that
controlling shareholders tend to hold more shares in the relatively smaller
companies among the top 500 companies listed on the NSE.
report, which takes into account private sector companies separately, my study
represents a combined analysis of different types of controlling shareholders
(i.e. business families, state and multinational companies). The shareholding
concentration is less among the top 50 companies, but as the sample size
increases the level of concentration increases as well. This suggests that
controlling shareholders tend to hold more shares in the relatively smaller
companies among the top 500 companies listed on the NSE.
Comparing the data with the previous
studies discussed above, it is clear that the promoter holdings in 2015 are
more concentrated than those in 2007, but they are less concentrated compared
to 2011. This indicates that while there was a trend of further concentration
during the period between 2001 and 2011, there has been some level of
dispersion thereafter.
studies discussed above, it is clear that the promoter holdings in 2015 are
more concentrated than those in 2007, but they are less concentrated compared
to 2011. This indicates that while there was a trend of further concentration
during the period between 2001 and 2011, there has been some level of
dispersion thereafter.
However, in addition to the
economic and business reasons, I find a significant legal and regulatory reason
that may have resulted in this outcome. In June 2010, the Government of India
prescribed that within a three-year period thereafter (i.e. by June 2013) all
Indian listed companies are to maintain a public shareholding of 25%, due to
which promoters could hold no more than 75%.[1]
For state-owned enterprises (SOEs), the minimum public ownership was set at
10%. However, the limit for SOEs has since been raised to 25% to be effective
in 2017.[2]
Promoters that held in excess of 75% (or 90%, as the case may be) were required
to dilute their holdings. SEBI also devised
a number of methods for such dilution, which non-compliant companies were
required to adopt.
economic and business reasons, I find a significant legal and regulatory reason
that may have resulted in this outcome. In June 2010, the Government of India
prescribed that within a three-year period thereafter (i.e. by June 2013) all
Indian listed companies are to maintain a public shareholding of 25%, due to
which promoters could hold no more than 75%.[1]
For state-owned enterprises (SOEs), the minimum public ownership was set at
10%. However, the limit for SOEs has since been raised to 25% to be effective
in 2017.[2]
Promoters that held in excess of 75% (or 90%, as the case may be) were required
to dilute their holdings. SEBI also devised
a number of methods for such dilution, which non-compliant companies were
required to adopt.
A logical follow through to this
development would be that between 2011 and 2015 there is likely to be
dispersion rather than concentration. More specifically, since the minimum
public ownership requirements took effect from 2013, substantial dispersion is
likely to have occurred thereafter. Given that the public shareholdings norms
are likely to be more stringent for SOEs with effect from 2017, we can witness
a further dilution of promoter shareholdings (especially in companies where the
government is the controlling shareholder).
development would be that between 2011 and 2015 there is likely to be
dispersion rather than concentration. More specifically, since the minimum
public ownership requirements took effect from 2013, substantial dispersion is
likely to have occurred thereafter. Given that the public shareholdings norms
are likely to be more stringent for SOEs with effect from 2017, we can witness
a further dilution of promoter shareholdings (especially in companies where the
government is the controlling shareholder).
The above analysis is consistent
with one of the findings in the Business Standard study which suggests:
“Promoter stake was up during the 2011 and 2013 market correction, but resumed
the downward trajectory in the bull run that started in the latter half of
2013”. The market changes seem to correspond with the legal and regulatory
changes as well. While there is a correlation between these factors and the gradual
dilution of promoter shareholdings in Indian companies, these studies would not
clearly identify the causation aspects.
with one of the findings in the Business Standard study which suggests:
“Promoter stake was up during the 2011 and 2013 market correction, but resumed
the downward trajectory in the bull run that started in the latter half of
2013”. The market changes seem to correspond with the legal and regulatory
changes as well. While there is a correlation between these factors and the gradual
dilution of promoter shareholdings in Indian companies, these studies would not
clearly identify the causation aspects.
Although there are signs of change
in shareholding patterns in Indian companies, they are not significant enough
to bring about radical changes in either corporate governance or the market for
takeovers.
in shareholding patterns in Indian companies, they are not significant enough
to bring about radical changes in either corporate governance or the market for
takeovers.
[1] Securities Contracts (Regulation) (Amendment) Rules, 2010.
[2]
Securities Contracts (Regulation) (Second Amendment) Rules, 2014.
Securities Contracts (Regulation) (Second Amendment) Rules, 2014.