For long, the conventional wisdom has been that promoters are loath to shed their stake in companies that they manage.
But recent evidence suggests there is a case for a rethink. An analysis of shareholding patterns of Indian companies over the last four years shows that in over a third (180) of the CNX 500 companies promoters have reduced their stake. Another 150 companies saw no change.
Promoters held 54 per cent of the total market capitalisation of Nifty in December 2007. But this has steadily declined to 48 per cent by June 2011.
Koutons Retail, Firstsource Solutions, DLF, Punj Lloyd and Sobha Developers were some companies which saw a substantial decline in promoter stakes in the last four years.
Falling stock prices over the past one year have not deterred promoters either, with many promoters offloading shares or diluting their stake to raise fresh equity. The promoter group of Tube Investments has offloaded more than 60 lakh shares of the company in the last one year.
Similarly Piramal Healthcare, Tech Mahindra, Punj Lloyd and many others have also seen their promoters significantly trim holdings since June last year.
In terms of percentage holding, Tata Sons' holdings in Tata Motors have dipped to 25.6 per cent by this June compared to 27.22 per cent in June 2010. Mr Uday Kotak's holding in Kotak Mahindra Bank stands at 41.51 per cent against 43.93 per cent in June last year.
The causes
In many cases, promoters seem to have diluted their holdings to bring in new investors who can supply capital. Companies that made a Qualified Institutional Placement (QIP) issue in 2009 figured prominently in the list of promoters shedding their holdings.
Infrastructure and realty players such as Punj Lloyd, IVRCL and Sobha Developers were among the prominent companies to figure on this list.
The funds crunch in 2009, when banks reduced lending to real estate players, prompted many of them to take the QIP route to meet capital requirements.
Pledging shares
There are also instances where promoters had pledged shares to raise funds and were forced to cede control as they failed to redeem the pledges – as happened in the case of Koutons Retail.
The company's promoter group holds just 21.7 per cent of the share capital now, down from a 63.9 per cent holding in June last year, following lenders invoking the pledged shares.
The case of Kingfisher Airlines is also similar; this company issued equity shares to a consortium of lenders against loan.
Mr Vijay Mallya's stake in the company stands at three per cent now (total promoter group holding is at 58.6 per cent now against 66.27 per cent in June 2010), down from 5.7 per cent a year earlier.
In the case of banks, the regulatory requirement of no promoter holding over 10 per cent stake in a private bank has led to steady dilution of holdings.
Promoter stakes in Kotak Mahindra Bank and IndusInd Bank may have fallen due to this reason.
Who bought the stakes?
The overall picture suggests that shares offloaded by the promoters have been picked up by foreign and domestic institutional investors in most cases.
The markets may have fluctuated in this period, but FII holdings as a percentage of market capitalisation of CNX 500 companies have risen to 16.3 per cent from 15.4 per cent in December 2007. The domestic institutions too have seen their holdings rise to 10 per cent versus 7.9 per cent over the same period.