Mumbai, April 1: The recent sharp fall in stock markets may have been a godsend opportunity for promoters and majority shareholders to raise stake in their entities at lower value, but that has left several minority shareholders, including money managers, fuming. The real resentment is that the promoters are surreptitiously raising their stake - buying (or selling) shares at certain quantity from the open market - without taking minority stakeholders into confidence.

Currently, a shareholder, who transacts more than 0.5% of the number of company shares listed on the stock exchange, only needs to make a disclosure the same day. So, technically, he can buy up to 0.49% stake in a company daily, subject to the upper limit of 5% every year, according to SEBI's regulations on creeping acquisition.

The shareholding pattern of a company is disclosed only at the end of every quarter, unless there is any major change in key shareholding.

With several mid- and small-cap shares eroding as much as 50-60% in value in the past two months, their promoters stealthily accumulated shares from the open market. Fund managers feel promoters raising or trimming stake in their companies, irrespective of the size of the transaction, should be disclosed to the stock exchanges on a daily basis, in line with the norms in developed markets. In the US, promoters or major shareholders are mandated to disclose to the authorities any change in their holdings on a daily basis.

"There is lot of scope to improve disclosures in shareholding reporting to raise corporate governance standards," said KPMG India's head-US GAAP and IFRS Services Jamil Khatri. The logic behind this argument is promoters or key shareholders have the privilege of access to critical information and have a better sense of what is the right value to enter or exit their company. In many cases, promoters buying into their shares from the open market is considered a key positive indicator by many investors about the future prospects of the company.

There has to be some transparency in the way it is done. Why should smaller shareholders always be disadvantaged," said a prominent fund manager, who has been vociferous about the "discrimination against minority shareholders in the existing company laws".

But, value buying need not be the only reason why promoters or majority shareholders buy shares from the open market discreetly. In recent years, promoters of several large companies have mopped up shares in the market to stave off hostile takeovers (a takeover which goes against the wishes of the company's management).

Many fund managers feel that the existing company laws, which have been framed by industry associations, is heavily skewed towards companies. "There needs to be a forum where investors such as institutions and associations need to sit together with the industry to structure laws to ensure that smaller shareholders are not snubbed," the fund manager said.