Finmin's listing proposal will depress markets: Experts

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NEW DELHI: Finance Ministry's proposal to impose a mandatory limit of public holding in listed companies has evoked a sharp reaction from experts, who feel that such a move would depress capital markets.

"The finance ministry's proposal will further depress the markets and not benefit retail investors," said investment analyst and resource person of Consumer Unity and Trust Society (CUTS) Jaisingh Kothari.

Expressing a similar opinion, senior partner of Titus and Co Advocates, Diljeet Titus said "the proposal would affect more than 40 per cent of the companies who will be required to comply with a new set of regulations."

Managing director of Taurus Mutual Fund, R K Gupta, also felt that "it would be be difficult for the companies to comply with the regulations as they cannot control sale-purchase of equity on the market."

The Finance Ministry has issued a discussion paper proposing a mandatory limit of 25 per cent of public holding in all listed companies.

The discussion paper also made a case of properly defining the word 'public' in the Securities Contracts Regulations Act, possibly by excluding institutional investors like FIIs, financial institutions and mutual funds.

Commenting on the proposal to define the word 'public', Titus said, "definition can never be all encompassing as there would be exceptions. It would lead to litigation, ultimately affecting the business of companies."

The Finance Ministry's proposal, Titus said, would also create different categories of investors "virtually forcing a retail investor to find out another retail investor to sell shares."

If pursued, he added, the proposal could even shrink the market and depress the value of shares.

The better way to deal with stock market volatility, Titus said, would be to improve compliance of the existing regulations.

According to Kothari, "this is not the right time to impose such a regulation as the proposal would not benefit retail investors."

The government should ban short-selling before imposing such a restrictive regulation, he said, adding that "in a free market, the companies should be given the freedom to fix prices and decide on percentage of shares to be offloaded to public."

Even if the companies decided to offload shares at this time, Kothari said, "it would not be possible for retail investors, who have already exhausted their limits, to buy shares at current rates."

Many promoters, Gupta said, want to keep their shareholding up to 55 per cent to ward off threats of hostile takeover, but they have no control over the remaining portion.

Secondly, he added, the companies would face practical difficulties in ensuring that 25 per cent of equity remains with a particular set of investors.

Referring to some high-premium IOPs in the recent past, Gupta said, "the government should develop some mechanism to ensure that companies do not charge premiums beyond a point."

Source: http://economictimes.***************...ow/2752579.cms