Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Will SEBI's steps help investors?
Thu, 6 Jun Pre-Open

In June 2010, the Securities and Exchange Board of India (SEBI) had directed all listed companies to have a minimum public shareholding (MPS) of 25% in three years time period. SEBI had brought this regulation so that dispersed shareholding structure is maintained which would help bring sufficient liquidity and which in turn would help in fair price discovery, thus less susceptible to manipulation.

The said deadline of three years ended yesterday. However there are still approximately 108 companies, which include names like Adani Ports, BGR Energy, Videocon industries, Tata Teleservices (Maharashtra), Fresenius Kabi Oncology, etc. who have failed to meet the said requirement. So what is SEBI doing about this?

SEBI had issued letters to the companies repeatedly advising them to take appropriate steps in order to meet the said time lines of MPS. The companies were also warned by SEBI. In case they failed to meet the requirements within the stipulated time frame, the regulator would take steps against them. As per SEBI, the promoters and the management of the company are to be blamed for not offloading the stake and thus not following the issued orders. Thus, SEBI has laid down some steps against such promoter/promoter groups or directors of such companies. It will take the following steps on such non-compliant companies till they comply with the MPS requirement -

  1. Freezing of voting rights and corporate benefits like dividend, rights, bonus shares, split, etc.
  2. Prohibiting the promoters/promoter group and directors from buying, selling or otherwise dealing in the securities of their respective companies, except for the purpose of complying with the minimum public shareholding requirement
  3. Restraining the promoter/promoter group and directors from holding any new position as a director in any listed company
But will these steps taken by SEBI really hasten promoters to follow the guidelines? Will this move help minority investors? This remains to be seen.

Moreover, the minimum shareholding guideline, though a step in the right direction, may do little to deter corrupt promoters from committing fraud. Remember the Satyam scam where the promoter managed to create such a big scam while holding less than 5% stake in the company. Given such cases, investors must beware of investing in companies with poor corporate governance.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Equitymaster requests your view! Post a comment on "Will SEBI's steps help investors?". Click here!


Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms