The Indian government on Friday proposed that 25 per cent of a listed company's equity should rest with the public, in a change to stock market listing rules it said should apply both to government and private firms.
A proposal from the finance ministry said powers of the stock exchanges to relax listing conditions needed to be withdrawn and powers of the market regulator to do so may also be taken away.
"A large number of shares distributed among a large number of shareholders is essential for the sustenance of a continuous market for listed securities to provide liquidity to the investors and to discover fair prices," the statement said.
"The larger the public float, the less is the scope for price manipulation," it said.
A discussion paper had been placed on the finance ministry's Web site http://www.fin.nic.in.
The word "public" also needed to be defined, the statement said, noting that if investors such as foreign and local institutions, mutual funds and private corporate bodies came under that definition, then the floating stock would be "insignificant". "The public offer envisaged at initial listing is of no consequence unless the public are actually allotted shares," it said.
In addition, it proposed that if a company's public holding fell below 25 percent, it should be raised back to that level within three months and if not, it could be delisted.
Many companies on India's stock exchanges have public holdings below 25 percent. For example, the total public share holding, including mutual funds, of state-run power producer NTPC was 10.5 percent on Dec 31.
For private firm Tata Consultancy Services, India's largest software exporter, total public holding was 22.22 per cent at the end of last year.
After a five-year bull run and a record $8.3 billion raised from IPOs in 2007, India's markets have a 2008 pipeline of nearly double that for capital raising via IPOs, according to data from Thomson Financial.
(Reporting by Hiral Vora; Editing by Charlotte Cooper)