25% public shareholding, creates 100% worries

Current decision on public shareholding provisioning by Government left each and every entity of the market into great confusion and worries. Though the motive behind such amendment is to increase market depth and best price discovery methods in a company, but the hidden truth behind such move is to gather money in order to reduce the India's debt position which is nearing 60-80% of GDP - a sign for concern especially when its a developing economy.

Through this move, government will be able to collect Rs. 1.5-2 Lakh Crore from nearly 200 companies in India who are not meeting 25% public shareholding pattern, out of which 30 are public sector undertakings including ONGC, BHEL etc. From 3G auction Government added Rs. 1.05 Lakh Crore in its kitty but still it hasn't met its revenue generation target for this planning session.

Now look at the various concerns of market participants on this rule.
1. Cash rich corporates worried that what will they do with the money raised from FPOs as they don't such business plan ahead. They don't want to dilute the ownership.
2. Government has to amend the SEBI's ACT chapter XII of Issue of Capital and Disclosure Requirement Regulations, because company can raise funds in one fiscal year once i.e., one time in 12 months. So, the company's which recently raised capital from the market how will they be allowed to raise further before the amendment.
3. Retail investor's won't be much benefitted as they look for capital gains and preferred IPOs where they can meet their investment objectives. But now, only FPOs will come into market and this will affect their objectives.
4. Imagine, when 200 companies came up with their FPOs, investors have to borrow money from banks and financial institutions, due to this demand upsurge, interest rates will rise which again is the area of concern as it will increase inflation further.
5. Due to increased interest rates and inflation rate, liquidity will be squeezed out of the system leading to crowding out of investments from the country. This will hamper the growth prospects and objectives of the country.
6. Cyclical businesses need funds as per their business cycles, and if they have to raise funds before arrival of their investment period, where they will park their funds.
7. Reduced pie of promoters in overall shareholding, no doubt will somewhat control the corporate governance issues, but this will demotivate new entrant as well. This will halt entrepreneurial activities in the country which are of utmost importance for growth and employment generation.


Keeping all the above points in mind, the picture is not so clear and attractive behind these new provisioning and the only thing it will do is to create volatility in the market which is not good for capital market of any country.