The government may reap in over Rs 60,000 crore if it goes ahead with sales of shares of public sector units (PSUs) as proposed by the market regulator, Securities and Exchange Board of India's (Sebi).
On Thursday, Sebi asked finance ministry to raise floating stocks in PSUs to 25% of the total market capitalisation by divesting the government stakes. This would bring the PSUs at par with private listed companies. It also gave listed companies a three-year period to achieve the dilution target. For an unlisted PSU, the government would have to dilute 25% if it plans an initial public offering.
Most industry experts said Sebi's move, though a bit late in the day, was in the right direction, especially on the limit hike for anchor investors to 60% from 30% of the institutional bucket.
Sebi has also stipulated the minimum dilution of stake in IPOs to be 25%, or Rs 400 crore, whichever is lower, for companies with post capitalisation of less than Rs 4,000 crore.
This has removed the anomaly that a company just short of Rs 4,000 crore in market cap was required to dilute about Rs 1,000 crore while another company at Rs 4,000 crore market cap was required to dilute only Rs 400 crore.
Market experts appear quite satisfied with the Sebi recommendations on PSU stock dilution by 25%, however, the decision rests with the government of India in accepting them. With PSU banks in dire need of re-capitalisation, it could well be a timely move to dilute government stake in its banks.
According to market estimates, the government could raise over Rs 60,000 crore if it divests equity in its companies in the ratio recommended by Sebi.
"In the short run, one can expect more supplies of stocks and increased participation by overseas investors," said Anish Thacker, partner at Ernst & Young.
Increasing the floating stocks in the market is expected to bring about some changes in the pricing of stocks experts opined.
"There will be a fair amount of money coming in where free float is more," said Avinash Gupta, senior director at Deloitte.
The regulator's move is to ensure that better companies get listed, he said.
According to Thacker, in the long term, one could expect ample stocks floating around. "This could lead to some correction in prices. It's a kind of a price discovery mechanism once the level of floating stocks rises," said Thacker.
"India is moving more towards universal practices where promoter-run companies cease to exist and give more room for professionally-managed ones," said a senior director at a foreign institutional brokerage.
However, there were a few critics who disagreed with Sebi's (Research Analysts) Regulation, 2014 that sought registration of individual analysts and entities engaged in the issuance of research reports or analysis.
"This going a bit too far and appears that the regulator wants to control everything under the moon," said a research analyst at a leading brokerage.
Most analysts dna spoke to wondered how a non-binding advice can translate into such kind of stipulations. They were of the view that their advisory reports were in no way compelling investors to buy or sell stocks, as the ultimate decision is taken by the investor.
Besides, there were many publications, individuals and media houses that keep recommending a buy or a sale. "Does this mean all television channels that report on markets and recommend stocks will need to get registered with the regulator?" asked Arun Kejriwal of Kejriwal Research.
"I am not into broking business but do my own research that is available on my website. Why should I go to Sebi? wondered Kejriwal.
According to one industry observer, Sebi needs to stay focused rather than going overboard.