Retail shareholders' holding fell steeply in last decade: IIM-A study

Promoters, institutional investors have started increasing their holdings in domestic private sector companies

According to a latest study of top companies on Nifty and other indices between 2001 and 2011 by the Indian Institute of Management (IIM-A), with promoters and institutional investors increasing their holdings, especially in domestic private sector companies, retail non-institutional shareholders saw their holdings decline in the same period.

Covering a sample size of around 189 companies including domestic private companies, foreign private companies, government owned companies and management controlled companies for the 2001-2011 period, the study analysed firms' shareholding pattern data sourced from various indices including National Stock Exchange (NSE), Bombay Stock Exchange (BSE), and Nifty, among others.

"Concentrated ownership and control is the predominant shareholding pattern in India. Over the eleven-year study period from 2001 to 2011 December, controlling shareholders have further entrenched themselves by substantially increasing their holdings, especially in the Nifty domestic companies(from 26.41 per cent in 2001 to 46.80 per cent in 2011) while strengthening their already large holdings in the Junior Nifty domestic companies(from 42.51 per cent in 2001 to 45.98 per cent in 2011)," the study analysed.

Conducted by Bala N Balasubramanian and Anand Ramaswamy of IIM-A, the study data under four categories of shareholders in the same company, namely promoters, institutional investors, non-institutional investors and government.

"In line with the trends in other developed markets, non-institutional retail shareholdings are on the wane in the country. During the study period, they declined substantially from 28.71 per cent in 2001 to 15.95 per cent in 2011. In the Nifty companies, much of these holdings were picked up by the promoters in the domestic private sector companies to boost their entrenchment and as a defense against hostile takeovers. In the Junior Nifty companies where promoters already had entrenched themselves, institutional shareholders absorbed most of the holdings released by non-institutional shareholders," it stated.

Further, foreign companies, as per the study, strengthened their entrenchment with median holdings running over 50 per cent right through. However, government policy changes opening up several business sectors for majority foreign direct investment may be a contributing factor for the decline in the number of listed companies.

Government companies witnessed a decline in non-institutional share holdings over the study period, with institutional holdings showing corresponding increases.

"In case of management controlled companies in this sample, institutional investors have increased their holdings from 35.22 per cent in 2001 to 51.09 per cent in 2011, at the expense of non-institutional shareholding that correspondingly went down from 40.31 per cent in 2001 to 36.26 per cent in 2011. Management controlled companies in the Junior Nifty group saw extraordinary escalations in institutional holdings from 7.95 per cent in 2001 to 42.42 per cent in 2011," as per the study.

Meanwhile, institutional investors increased their holdings (from 25.69 per cent in 2001 to 29.49 per cent in 2011), with Junior Nifty companies being the preferred target for such increases (from 18.98 per cent in 2001 to 27.58 per cent in 2011).