MUMBAI: Companies with promoter holdings beyond 65 of the outstanding equity base are likely to underperform in the next two years, as excess supply of stock may not always be met with sufficient demand to ensure price stability.
Friday’s proposed federal move to increase minimum public shareholding from 25 to 35 would impact about 1,400 listed companies, including TCS, Wipro, HDFC Life, Avenue Supermart, DaburNSE 0.05 %, Bandhan BankNSE 0.43 % and Pidilite IndustriesNSE -1.38 %, among ..
The move to increase public holding will lead to valuation corrections as many of the stocks are quoting at premium valuations because of the restricted free float.
“The sell-off will be an overhang on stock prices in these companies until they end up selling stakes to investors” said Deven Choksey, MD, KR Choksey Investment Managers. “Quite possible, the valuations will come down under the given situation….the longer it takes, the more painful it would be.”
Most of the offers for sale done recently to meet minimum public holding norms are with a discount of 5-10 to the market price. Of the last 15 OFS proposals, 11had offered discounts between 3 a ..
“If increased public shareholding norms are implemented, the supply of paper in the market will increase and investors would rather wait to buy at a discounted price,” said Amar Ambani, head of research, Yes Securities.
At present, of the BSE 500 companies, 100 have promoter stakes above 65. There are 40 PSUs with public holding lower than 35. TCS alone would be required to dilute worth Rs 60,000 crore to reduce its stake from 72.05 to the proposed 65.
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