Number of delisted companies on the rise; bourses may see more exits

Despite a record line-up of debuts on the bourses this year, India’s listed universe is shrinking, and shrinking fast.

Around 1,000 companies were compulsorily delisted in the past two years on the BSE and the National Stock Exchange (NSE). And, by some estimates, another 1,000-2,000 may be shown the door, effectively contracting the universe of listed shares by 30-50 per cent.

Around 5,900 companies were listed on the BSE on March 31, 2016. The number has now reduced to 5,035. A majority on the list have been compulsorily delisted, sources said.

The NSE delisted 100-odd companies in the past one year. At present, around 1,600 companies are listed on the NSE.

Compared to the spate of exits, far fewer companies, around 70 in number, entered the market in the last two financial years.

In May 2016, Sebi announced measures to delist companies from stock exchanges, which included delisting of 1,200 companies in which trading was suspended for seven years or more.

The exits are likely to continue. That is because another 1,500-odd companies still figure on the list of suspended companies on the two bourses. And with Sebi deciding in its recent board meeting to put in place a mechanism to check non-compliance of listing conditions, many more companies are likely to face suspension in the coming months.

According to Sebi’s new rules, companies that fail to comply with norms on board composition and are unable to constitute an audit committee or submit their audit report for two consecutive quarters are likely to face suspension. This is likely to lead to the compulsory delisting of 1,000-2,000 companies in the next year or two.

An email sent to the NSE and the BSE did not elicit responses. Sebi did not respond to questions sent to it.  

“Investors in suspended companies might have lost billions of rupees in the past 4-5 years from the peak or average market capitalisation before these companies were suspended,” said G Chokkalingam, founder and managing director, Equinomics Research and Advisory.  “Many first-time investors lose money in these companies and do not come back to the market. Removing stocks that have governance issues or are not fulfilling regulatory obligations will reduce chances of investors losing money.”

In the past lawsuits have been filed against Indian stock exchanges, alleging inadequate monitoring of listed companies, particularly those that have been suspended for trading for a substantial period.

According to some experts, compulsory delisting can work against investors. “It jeopardises investor interest and allows promoters to go scot free,” said Virendra Jain, founder, Midas Touch Investors’ Association.
Exchanges have not been furnishing details of compulsory delisting for many years, Jain added. “We may move court for non-furnishing of compulsory delisting orders and not giving proper exit options to shareholders even after so many years,” he said.

For his part, Chokkalingam said the exercise was likely to prove beneficial in the long run. “This might be a painful exercise for some investors but would benefit the capital market as a whole. In any case, the stocks owned by these investors would not be worth much at this point,” he added. 

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel