India's free float M-cap still lags major markets

Despite the increase in the number of listed firms in India, the country’s free-float market capitalisation remains low. Promoter holding as a percentage of total stock ownership of BSE 100 companies stood at 47 per cent at the end of March 2016. This compares with a figure of 90 per cent for companies listed on the Nasdaq, 89 per cent for Bovespa, 66 per cent for the Hong Kong Stock Exchange, 82 per cent for LSE and 80 per cent for the Japan Stock Exchange at the end of 2015.

Free-float market capitalisation takes into consideration only those shares issued by the company that are readily available for trading in the market. It generally excludes promoters’ holding, government holding, strategic holding and other locked-in shares. A high free-float ensures better liquidity and may attract higher institutional participation. 

“The government’s divestment in public sector undertakings (PSUs) as well as the entry of firms with low promoter holding has helped boost the free-float,” said G Chokkalingam, founder, Equinomics Research & Advisory. 

The non-PSUs were asked by the Securities and Exchange Board of India (Sebi) in June 2010 to attain a minimum 25 per cent public shareholding within three years. PSUs are yet to meet this requirement and it is estimated that the government will need to sell shares worth about Rs 1.2 lakh crore in listed state-owned entities in the next few months to comply with the norm.

According to Chokkalingam, Indian industry has traditionally been dominated by family-run businesses where the promoters are unwilling to cede control and dilute their holding beyond a point. However, the addition of names such as Shriram Transport Finance, YES Bank, and IndusInd Bank over the last decade — all of which have a promoter holding of less than 30 per cent — has boosted the free-float of BSE 100 companies.