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Last month, Sun Pharma shelved plans to invest in a wind energy project in the US through its subsidiary Taro Pharma after investors angrily dumped the stock, leading to a 6 per cent drop in share price within five days of the announcement. The stock recovered 4 per cent after the company rolled back its plans and decided not to invest in unrelated businesses.
This tough posturing by public shareholders, including institutional investors, will set the tone for shareholder activism in 2016.
"Over a period of time, regulators have supported protection of minority shareholders, investors have become more active in protecting their interests and markets have started rewarding good governance and punishing bad governance," said Nilesh Shah, MD of Kotak Mahindra Asset Management Company.
The Street is now quick and forceful in reacting to company initiatives that are not favourable to the interests of public shareholders. The message is loud and clear: shareholders will not tolerate companies that don't allocate capital efficiently or put money in unrelated businesses that produce lower returns. Shareholders either block such moves or dump the stock.
Other companies that came up with proposals not palatable to public shareholders have also beaten a retreat.
In October, DCB Bank had to alter its expansion plans following a backlash on the bourses. Its stock crashed 20 per cent after the bank announced an aggressive expansion plan to set up more than 150 branches over a 12-month period.
"As ownership becomes more institutionalised, we will see more instances of shareholder activism," said Amit Tandon, managing director of Institutional Investor Advisory Services. Institutional ownership in theBSE 200 (Bombay Stock Exchange) companies has increased to 40.7 per cent for the quarter ended September 2015 from 32.7 per cent five years ago. This is gradually mirroring the trend in western economies.
Many expect and demand institutions like Life Insurance Corporation, India's biggest institutional domestic investor, take a more active role in guarding the interests of public shareholders. "While LIC has a voting policy, there is no clarity on how it votes and whether the votes are in line with its policy," said Shriram Subramanian, managing director of InGovern Research. LIC also has a fiduciary responsibility to its unit holders and the capital markets at large.
"IRDA (Insurance Regulatory & Development Authority) is expected to bring out guidelines for insurance companies to have a voting policy on corporate resolutions, and publicly disclose voting records," he added.
In a bid to have mutual funds play an active role in ensuring better governance of listed companies, Securities & Exchange Board of India, in 2010, mandated that funds disclose their voting policy and procedures.
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