The central government has done well to increase the levels of public participation in the share capital of companies listed on stock exchanges. The threshold level of public holding has been raised to 25 per cent from 10 per cent. Companies that fall short of this minimum have been asked to comply within a time frame by adding to the public holding at least 5 per cent every year. As for the new issuers of capital, some leeway in the time frame has been given to those who will have very large share valuations after the issue. The idea clearly is to help a company sell its shares in a gradual manner without fear of depressing the share prices during the initial offer. In fact, the main objective of the new guidelines is to strike a fresh balance between the relative shares of the promoters and the public.

Until the early 1990s, capital market rules were tilted in favour of the public. Promoters were not permitted to earmark for themselves more than 40 per cent of a new share issue. A few exemptions were allowed, as for example when there was a financial collaboration with a State government development institution. However, early in the era of liberalisation, pressure came from several directions to alter the listing rules to give promoters a larger share. Technology companies that had a limited presence in the stock markets and were, unlike today, hardly favoured by investors lobbied for a smaller public share. The idea was to ensure attractive valuation for their shares, which were later used as 'currency' for acquisitions and expansion. It was also argued that a lower public share would reduce the issue expenses, a line of thinking that found wider support when even the relatively small public shares were split among retail investors, high net worth individuals, and so on. However, the lower reservation for the public, which was brought down in stages to 10 per cent, encouraged collusive practices in several cases, leading to artificially high share prices. Liquidity has suffered and, as the government has now realised, a high percentage of floating stock is necessary for discovering a fair price. As a result of the revised guideline, very large share offerings estimated between Rs.160,000 crore and Rs.210,000 crore — a sizable portion by public sector enterprises — are expected soon. All these, however, do not guarantee a better deal for the small investor. Stock market reform may have brought substantial benefits to the capital market. But, as this year's round of public sector disinvestment shows, retail investors remain disgruntled and alienated.

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