Budget proposal seeking a 35 per cent public shareholding in listed companies may result in windfall revenue to the government in the form of long-term capital gains tax (LTCG) but such a move could be a drag on the stock markets, experts told BusinessLine . Share price of multinational companies (MNCs) in India may get affected most by this move. SEBI will have to examine the proposal, the Finance Ministry said in a clarification issued after the Budget speech.

According to data from Mumbai-based KR Choksey (KRC) Investment Managers, there are 167 companies among the top 500 listed firms on the BSE where promoters will have to dilute their stake to adhere to new public shareholding norm. This would require ₹3.69 lakh crore worth of capital that would have to come from stock market investors including foreign and domestic funds and retail investors.

Usually, SEBI is likely to allow three-year period to meet the new criteria and even if one takes a conservative valuations into account, capital in excess of $10-12 billion would be required every year to meet this criteria alone for the next three years, experts said.

“Watch out richly valued MNC stocks, whose valuations may come under check if their promoters have to part with their holding,” said Deven Choksey, founder, KRC Investment Managers.

Most MNC company stocks in India are currently trading at a valuation that is higher than their parent company in their home country.

Higher LTCG

“Assuming that selling will happen to bring down promoters holding to 65 per cent, it will result in higher LTCG,” said Choksey.

According to KRC, there are 40 companies out of the 167 that would end up paying around ₹9,000 crore in LTCG if one takes into account their yesterday’s closing price. The actual outgo could depend on the market capitalisation of the company when the dilution is done. The total capital required to increase public shareholding in these companies is ₹1.72 lakh crore, the data show.

A few large companies that require 10 per cent or more promoter dilution include Avenue Supermart (DMart), L&T Technologies, Astrazeneca Pharma, Adani Power, Abbott India and InterGlobe Aviation, among others.

No to STT rebate

The Finance Ministry did not yield to a demand from the equity brokerage community to bring back rebate on securities transaction tax (STT) under Section 88E of Income Tax Act, which was withdrawn by the former Finance Minister P Chidambaram in 2008.

STT is a tax on share market transactions and gets automatically deducted upfront based on a person’s turnover irrespective of profit or loss.

Instead, the Finance Minister gave a measly leeway on STT and said that it won’t be applicable on options that were exercised. Options are derivative instruments in equity markets. Imposing STT on exercise of options, which is akin to converting derivative position into cash transaction, was just an anomaly corrected by the Ministry, brokers said.