Indian stock markets still lack the much-required depth
Over the past five years or so the Indian bourses have been on fire. Other than some small time corrections, the markets have more or less remained bullish over half a decade. Market pundits are quite upbeat about the India story, and they vociferously claim that it is going to sustain over a period of time. In fact, most reports over the past three years had been so favourable that even the retail investors, who used to be so weary about the Indian markets, have also started investing in the Indian markets. As a result of all this, not only all the IPOs (barring a few) have been over subscribed, even the NFOs have been able to rake in good amount of money both from corporate and retail investor.
Amidst all this good news there was something intriguing (though not new) that we at the Planman Consulting’s, Global Strategy and Investment Consulting division came across the other day. While working upon one of our client’s (a Private Equity client) request, who was interested to buy a stake in an Indian listed company, we realised that most of our ‘fashionably’ recognised, publicly listed companies are hardly any public! As for most of these companies the majority of the stake is still closely held by the promoters itself! So much so that for all the claims to maximize shareholders wealth by these companies, it sounds hypocritical as there are hardly any shareholders, who hold some respectable stakes in their companies. To name a few of these giant corporations, who have been dominating the Indian markets – the promoters of Reliance Petroleum own 80% of its shares, Wipro - 80%, TCS – 80%, Jet Airways – 80%, Gillette India - 89%, Sundaram Clayton – 80%, Essar Steel – 87%, Godrej Industries – 86%, DLF – 88%, I-flex – 81%, iGate – 81% , GMR Infrastructures – 81%, UB Limited – 75%, Fortis Healthcare – 74% etc. With these kinds of giant stakes by the promoters there is hardly any thing left for the retail investor. Needless to state that such skewed share-holding patterns also restrict the supply of shares in the market, thereby putting pressure on prices and taking it away from its intrinsic value. It is not that the reverse isn’t true. The likes of Satyam Computers, Infosys, Dr. Reddy’s Labs, Bajaj Auto, and Grasim also exist wherein the promoters’ shareholding has been minimal (ranging between 8% in case of Satyam to about 30% in case of Bajaj Auto). But then these companies are really a handful! In the given scenario, for those ardent advocates of Indian stock markets, it is imperative to realise that current state of the market is far from being robust.
A market where sentiments still rule over the fundamentals and technicals, more often than not the retail investors get swayed, heavily weighing upon the market capitalisation. And for every time the Indian market breaks its own records of market cap, whether it assures wealth for the retail investor is contestable but what it definitely assures is a new and better ranking among the world’s most richest, for these promoters!
Over the past five years or so the Indian bourses have been on fire. Other than some small time corrections, the markets have more or less remained bullish over half a decade. Market pundits are quite upbeat about the India story, and they vociferously claim that it is going to sustain over a period of time. In fact, most reports over the past three years had been so favourable that even the retail investors, who used to be so weary about the Indian markets, have also started investing in the Indian markets. As a result of all this, not only all the IPOs (barring a few) have been over subscribed, even the NFOs have been able to rake in good amount of money both from corporate and retail investor.
Amidst all this good news there was something intriguing (though not new) that we at the Planman Consulting’s, Global Strategy and Investment Consulting division came across the other day. While working upon one of our client’s (a Private Equity client) request, who was interested to buy a stake in an Indian listed company, we realised that most of our ‘fashionably’ recognised, publicly listed companies are hardly any public! As for most of these companies the majority of the stake is still closely held by the promoters itself! So much so that for all the claims to maximize shareholders wealth by these companies, it sounds hypocritical as there are hardly any shareholders, who hold some respectable stakes in their companies. To name a few of these giant corporations, who have been dominating the Indian markets – the promoters of Reliance Petroleum own 80% of its shares, Wipro - 80%, TCS – 80%, Jet Airways – 80%, Gillette India - 89%, Sundaram Clayton – 80%, Essar Steel – 87%, Godrej Industries – 86%, DLF – 88%, I-flex – 81%, iGate – 81% , GMR Infrastructures – 81%, UB Limited – 75%, Fortis Healthcare – 74% etc. With these kinds of giant stakes by the promoters there is hardly any thing left for the retail investor. Needless to state that such skewed share-holding patterns also restrict the supply of shares in the market, thereby putting pressure on prices and taking it away from its intrinsic value. It is not that the reverse isn’t true. The likes of Satyam Computers, Infosys, Dr. Reddy’s Labs, Bajaj Auto, and Grasim also exist wherein the promoters’ shareholding has been minimal (ranging between 8% in case of Satyam to about 30% in case of Bajaj Auto). But then these companies are really a handful! In the given scenario, for those ardent advocates of Indian stock markets, it is imperative to realise that current state of the market is far from being robust.
A market where sentiments still rule over the fundamentals and technicals, more often than not the retail investors get swayed, heavily weighing upon the market capitalisation. And for every time the Indian market breaks its own records of market cap, whether it assures wealth for the retail investor is contestable but what it definitely assures is a new and better ranking among the world’s most richest, for these promoters!
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