Union Budget FY19-20- How increase in minimum public shareholding will affect investors & corporates

The FM announced a desire in budget to increase minimum public shareholding in listed entities from 25% to 35%. This will impact all companies with 65% and higher promoter shareholding. 

We screened BSE 500 and found a set of 167 companies with promoter holding more than 65% where shareholding will be needed to be pared down. These 167 companies have a combined market cap of Rs. 41.37 lakh cr which is approximately 30% of the total market capitalization of all listed entities. The regulation will necessitate a promoter dilution of Rs. 3.69 lakh cr. The set of companies includes some major MNC listed Indian entities like Siemens, BOSCH, ABB, 3M India, Gillette etc together with the 3 major Life Insurers ie HDFC Life, ICICI Pru & SBI Life.
M-cap  Classsification No. of companies Total m-cap Dilution
>25000 cr Large caps 34 29.05L cr 2.31 L cr
10000-25000 cr Mid caps 48 7.86L cr 89570 cr
<10000 cr Small caps 85 4.45L cr 47932 cr
The need to pare down promoter holding posses some prominent questions with regards to the timeline the promoters will be given to carry out the exercise, the current valuations of these companies and how easily the promoters can offload their stakes, the demand from institutional investors, domestic and foreign alike for the incremental supply that will be created in these counters in the secondary market. 
One of the key issues to focus on would be the MNCs which trade at considerable premium valuations given high corporate governance and astute capital allocation vis-à-vis Indian peers. It remains to be seen how these companies react and whether they are comfortable with the reduced shareholding or will go for delisting. These MNCs do not access the capital market regularly given low demand for fund raising and they will have to evaluate whether there is merit in being listed in the country at all. 
FMCG, Chemicals and BFSI sector needs the highest amount of dilution in that order. The valuation of certain sectors and companies looks stretched and with the need for stake dilution there will be pressure on these stocks. Lastly, we looked at the taxation perspective and how LTCG will be generated from the sale of these transactions; we found a set of 40 companies whose current market price is higher than the grand- fathered prices. Accordingly ~Rs. 10,000cr can be garnered in the form of LTCG from the regulation change. 

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