Here comes the UPA Government Promise of increasing public stake in PSU. Govt made changes to the rules of listed companies to maintain a 25% non -promoter holding ..mean public holding it includes FII,Mutual Funds,other corporates as well as Retail Investors..
Why did they made a change to the rules? so as to not to get opposition from LEFT with respect to stake sale in PSU's and Unions..( we have to wait for some more time to get a clarity on it )
Link for the news item.Listed firms must have 25% public holding
"These amendments include raising the minimum threshold level of public holding to 25 per cent for all listed companies and requiring existing listed companies having less than 25 per cent public holding to reach the minimum 25 per cent level by an annual addition of not less than 5 per cent to public holding "
But its not clear what if companies don't achieve the target will they be penalized ?
Down is the list of top companies with respect to Mcap who have more than 75% with promoters..
Another question comes up..how are they going to price the issue..From past history we can clearly see when ever we have a stake dilution by govenment we can see market reacting negatively towards it example of recent FPO are REC , NTPC, NMDC NMDC offer tanking a lot after the announcement of stake sale..coz they will go for a disscount to the existing CMP to attract the investors ...so can we expect the same for these companies in coming days .
But does the market has the appetite to absorb that liquidity ? looks a bit difficult cause the last time LIC saved these companies by buying shares that shows retail investors are not ready to invest in these PSU's..mean retail investors are not going to benefit from it
Apart from PSU's we have JP Power,Reliance Power,WIPRO,DLF and others should be divesting stake though its very less when compared to PSU's .Since its a small stake for them i guess they can manage..but are they ready for it..have to see?
How does govt benefit from the PSU stake sale? They can use the money raised to cover up its debt.(Regarding debt i have mentioned in another post about the debt problem india will face in coming years).if that's the case then money is not going for productive means..and also it means they have to sacrifice some part of dividend amount they used to receive