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5 things to know about ownership of companies
Stock market trends over a decade reveal a lot of information. This is just like things we learn from history about events that matter.
Institutions like the Reserve Bank of India, World Bank, IMF, Securities and Exchange Board of India, National Stock Exchange often publish such trends in working papers.
A recent paper released by NSE tracks the ownership trend in listed Indian companies over a decade to 2011. Ownership of listed companies and changes in it over a period of time tell you the direction a particular business is taking
Here are 5 facts to know:
Promoters want more stake:
In ten years to 2011, promoters hiked ownership in their companies. For companies in the Nifty 50 group, the promoter holding of domestic private companies rose to 46.8% from 26.4% in the 10-year period. This indicates the confidence owners had in their businesses and the need to defend their businesses from hostile takeovers, the study observes. It also shows that they did not have any other avenues for investing their money, the study adds.
Retail investors sold out:
Non-institutional holding in companies fell to 16.1% in 2011 from 32% in 2001 for NSE Nifty companies. Even in the CNX 100 companies, a similar trend was witnessed. This clearly shows that retail investors were not too keen to participate in the stock market. The study observes that promoters used buybacks and open offers to acquire shares from retail investors in NSE 50 companies.
Institutional holding up:
The overall institutional holding in Nifty 50 companies remained at 30.3% in 2011. It has barely changed since 2001. However, the institutional ownership in Nifty Junior companies rose to 27% from around 15%. This indicates that promoters of larger companies in Nifty 50 wanted to own more while those in smaller companies did not have to worry about it. Promoters of smaller companies already owned more than 51%. Institutional investors are slowly consolidating their ownership.
Management controlled companie's attractive:
The NSE Nifty and Junior have 13 companies that are management controlled. This means companies that do not have a specific promoter group. These are like ITC and Larsen & Toubro. The institutional holding in these companies surged to 51% in 2011 from 35% in 2001. The absence of a promoter means that a large chunk of the companyâ€™s equity was available for all shareholders. Institutional investors have taken the initiative in pushing up their ownership.
Number of listed companies too low:
Between the two national exchanges BSE and NSE, India has close to 7,000 companies listed. This is very low in comparison to the number of businesses that are formed each year. By 2011, the total number companies registered stood at 7,15,555 in India. It has jumped 79.5% over 2001 and more than 300% since 1991 when India opened up its economy and abolished licencing of most businesses. The number of foreign owned companies jumped 3 times since 2001 and eight times since 1991.
The NSE Nifty was at 1148 in 2001. It rose to 5834 in 2011 and over 7000 in 2014. Retail investors have been the biggest losers as they have exited while Nifty surged 5 times in those 10 years. The above analysis suggests that retail investors have sold off their ownership in a market that has consistently gained in value. Most promoters and institutional investors are sitting on gains.