Market regulator Securities and Exchange Board of India on Monday relaxed the creeping acquisition norms and allowed promoters to annually raise their stake through the route to 75 per cent via open market purchases instead of 55 per cent earlier.
Creeping acquisition refers to the process through which promoters can increase stakes in their companies by buying up to five per cent of the equity in a year. Earlier, promoters were allowed to do so only till they reached 55 per cent of the compnay's equity.
The late evening announcement, which came after the Bombay Stock Exchange's benchmark Sensex fell below 8,000 Friday following an over 1,000-point intra-day fall and volatile trading, is aimed at boosting stock market sentiments.
The Sebi Regulations will be amended separately, the regulator said in a press statement.
Sebi, however, imposed conditions that such acquisitions could be done only though open market operations and not via bulk, block deal, or through preferential offer.
Sebi also said that promoters would not require permission if their holding in the firm were to increase 5 per cent in the event of a buyback of shares. Earlier they had to seek the approval of Sebi's takeover panel.
"It has now been decided to automatically exempt increase/consolidation up to 5 per cent per annum as a result of buyback by a company," the press statement said.
The relaxation comes at a time when overseas investors have sold close to $13 billion in Indian stocks this year with some companies losing as much as 70 per cent of their value.
Experts expect the move to help the sliding market and companies shore up investors' confidence.
"Given market conditions, the decision will help promoters increase their holding up to 75 per cent at a relatively lower price. This will provide confidence to shareholders," said Sanjiv Agarwal, partner and head of valuation group, Ernst & Young.
"In an environment like this when institutional funding and liquidity is not available, any move to sustain stock prices against irrational movements is welcome. This is also good for the investor community and will help show promoters' confidence in their companies," added KPMG Executive Director Jai Mavani.
But chief financial officers said that it may be tough for most of them to generate cash in these times.
JSW Steel's CFO Seshagiri Rao also pointed out that only companies in which the promoter holding has reached 54 to 55 per cent will benefit from the move.
"It is a step in the right direction but how much it will help boost investor confidence and revive the market remain questions," Balrampur Chini CFO Kishore Shah.
He pointed out that, for example, the promoter holding in Balrampur Chini is 38 per cent. "It will take the promoters three years to cross the 55 per cent limit since the 5 per cent annual limit still holds," he explained.
