Shareholding rule deadline seen slowing rally

The spectacular 10% upswing in the stock market over the last five weeks, mainly driven by heavy inflows from foreign institutional investors, may well slow as companies will soon be scrambling to sell shares in the market or issue new ones to fulfil market regulator Sebi’s mandatory minimum public shareholding requirement.

Sebi has asked listed private firms to have a minimum 25% public shareholding by June 3.

For listed public sector companies, the corresponding figure is 10% and the deadline is August 1.

Several companies in all sectors have already used various channels like offers for sale (OFS) and, institutional placement programme, so on, to meet the requirement.

In all, 48 private companies and 12 state-backed firms are still required to comply with the Sebi norm.

This could mean, there could be a supply of $1.8 billion worth of shares by June 3 and $2.5 billion by August 1, said Bank of America Merrill Lynch analysts Jyotivardhan Jaipuria and Anand Kumar in a research report.

“This could be a near-term headwind to the market rally,” they said.

“On a long-term basis, this step is really a good move from the market regulator, to ensure larger degree of corporate governance. As companies are nearing the deadline, there will be a higher liquidity of the stocks,” said Vaibhav Sanghavi, director of equities at Ambit Capital.

But the impact will be more like hiccups, short-term in nature, say market experts.
“In almost 70% of the cases, I think it will be OFS, in which case the number of shares in the market will neither go up or down. There could be a marginal dip in the market, but not substantial,” said V G Kannan, president and COO at SBI Capital Markets.