India’s Regulator Seeks to Cut Number of Traded Companies

  • More than 4,000 listed companies to be delisted this year
  • Large number of thinly traded companies a ‘nuisance’: Sebi

India’s market regulator plans to delist more than 4,000 listed companies whose shares aren’t actively traded, as it tightens supervision of Asia’s fourth-largest stock market.

The clean up includes 1,200 companies whose shares have been suspended from trading on the BSE Ltd. and the National Stock Exchange of India Ltd. for the past seven years, U.K. Sinha, chairman of the Securities & Exchange Board of India, said in Mumbai. The 3,000 companies listed on the defunct regional bourses would also face the axe, he said.

“Having a large number of listed companies is a source of nuisance,” Sinha said. “They were being used to manipulate markets and avoid taxes. Cleaning up is a focus area this year.”

SEBI, in a bid to weed out illiquid stocks, in January allowed owners of small companies, where trading had been less than 10 percent of the total shares in the previous 12 months, to take them private. While more than 5,400 companies are listed on the BSE, the top 500 make up 95 percent of the total market value, according to the bourse’s website.

“The move can help participants and stock exchanges focus their energies on the large and liquid companies,” Jagannadham Thunuguntla, head of fundamental research at Karvy Stock Broking Ltd., said by phone from Hyderabad. “There can be operational issues. The model must be executed after taking into account various stakeholders’ point of view.”

Founders of the companies marked for delisting will be required to make exit offers to shareholders by setting a fair value to their shares, which will be determined by an independent valuer, Sinha said. Companies willing to resume trading on the BSE and NSE would be allowed to do so after meeting regulatory requirements. Founders who don’t comply “will face the music,” he said.

“Sebi is a substantially empowered regulator and the law allows us to take action against them,” Sinha said.

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