Are mutual funds now less inclined to be activists?

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Swraj Paul’s sweeping  moves to snap up shares in Indian companies and move to ‘clean them up’ are seen by some to be one of the rare occasions that promoters had reason to fear their shareholders in India.

This happened in the 1980s. More than three decades later, large institutional players seem less willing to rock the boat.

The introduction of disclosures on how mutual funds voted, as well as the entry of proxy advisory firms who could advise them on resolutions, was expected to help bring together opposition against unscrupulous promoters, and resolutions that might not be entirely in the interests of common shareholders.  

However, an analysis of 58,243 resolutions for 2017-18 showed that mutual funds are actually opposing a fewer proportion of resolutions today than they were earlier.  This is based on records collated by corporate-tracker Prime Database (

In fact, the proportion of mutual fund votes against resolutions is at a multi-year low, shows Prime's data. They voted against only 2.32% of resolutions in 2017-18(FY18). This is a little more than half of what it was in FY15 (4.48%).

It was hoped that mutual funds would act as a robust check on unreasonable promoter resolutions when the disclosure regime was put in place.

“All of you know that in the Asian region,  we have got a higher percentage of directors who represent shareholder with large shareholding,  called as promoter directors. In India, this situation is accentuated because we have almost 50 % promoter shareholding, on an average, in the Indian listed companies. So, the role of institutional investors is going to be important,” then Sebi chairman UK Sinha had said in July 2013 while delivering the Subir Raha Memorial Lecture. He had added that increased disclosure of institutional voting patterns and the entry of proxy advisors would create a 'counterpoint to promoters'.

Mutual funds voted in favour of 50,687 resolutions in FY18 or 90% of those brought about. 

But fund managers say that there may be less cause for worry than one might assume at first glance. The fall in votes against resolutions is said to be a consequence of changed promoter behaviour, according to some.

A fund manager at one of the top-five mutual funds said that promoters are now more willing to talk with fund managers.  There is an exchange of views before resolutions are put to the vote, to gauge reactions and changes are made accordingly.

“Earlier there was no dialogue,” he said.

The chief investment officer at another top fund-house said the same.

“Companies are not making changes which would attract activism,” he said. 

An analysis of individual fund resolutions shows that perhaps all mutual funds don’t feel the same way. There are at least a few major fund-houses are finding resolutions worth opposing. The highest proportion resolutions opposed by at least one major fund house is more than thrice the percentage of resolutions opposed by the rest of the industry.

For them at least, perhaps the 1980s are not all that distant a memory.

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