Bringing down the minimum public shareholding is a step in the right direction
| Photo Credit:
iStockphoto
The Finance Ministry has now proposed a new set of relaxations for larger companies looking to launch Initial Public Offers (IPOs) as the size of companies seeking to tap public markets has scaled up manifold. While the amendments propose some welcome relaxations, the focus should also be on reducing complexity in the public holding rules. Under the new rules, companies looking to launch IPOs will be classified into six categories instead of four, based on the size of their post-issue equity. Companies with post-issue market cap of ₹1 lakh crore or ₹5 lakh crore can now go public by diluting just 2.75 per cent or 1 per cent respectively of their capital, against the current norm of 5 per cent, while companies below ₹1,600 crore need to dilute 25 per cent in their IPO itself. One key problem with low float is that it exposes a stock to manipulation. The risk of this is less in large companies as they have a large number of outstanding shares. Therefore, the latest relaxation makes sense. However, instead of carving out many categories, it would be simpler to do away with IPO dilution norms altogether and replace them with a minimum number of outstanding shares — say, a million — to list in the markets. This is the practice in markets such as the US.
The new rules also grant large issuers a much longer timeline to get to the mandated 25 per cent public shareholding. Against the deadline of five years for others, companies with market cap of over ₹1 lakh crore and a public holding of less than 15 per cent at listing, will get 10 years to attain 25 per cent float. The argument for offering such a liberal timeline seems to be that Indian markets do not have the depth or breadth to absorb share sales from large issuers. This seems to be an overkill. If the size of companies launching IPOs has scaled up in the last decade, so has the buying power of domestic institutions such as mutual funds and pension funds.
Policymakers need to note that ensuring sufficient liquidity in listed stocks is only one of the objectives of the minimum public shareholding norms. The other equally important objective is better corporate governance. To ensure good governance, non-promoter shareholders need sufficient voting rights to overturn promoter decisions. This will be impeded if large companies take a decade to get to a 25 per cent public holding. The onus for enforcing compliance will now rest with the stock exchanges. Given their chequered track record in acting as frontline regulators, this too may need a rethink.
Published on April 3, 2026