Promoters of family-owned businesses in India are more confident than ever as their stakes in these companies have gone up over the last decade. According to a study conducted by Indian School of Business's (ISB) Thomas Schmidheiny Centre for Family Enterprise on the ownership pattern of listed family firms, while concentration of promoters' shareholding is decreasing in non-family firms, it is increasing in family-owned businesses.
“This reinforces the preeminent role of family-controlled businesses in India. It seems to imply that the engine of growth of Indian businesses will not be dependent on overseas or other promoter categories. Instead, promoters of family firms will continue to play a major role”, said Nupur Bang, associate director at Thomas Schimidheiny Centre for Family Enterprise.
In family business group firms, the preferred mode to hold shares is through holding companies, while in standalone family firms, the family members prefer to hold shares directly as individuals or Hindu Undivided Family (HUF).
Promoters of MNCs have also increased their stake in their Indian subsidiary, probably indicating their belief in the ‘India story’. The promoter stake in state-owned enterprises has been steadily falling over the past decade. This is in line with the policies of successive governments in India to divest their holding in the state-owned enterprises.
Non-promoter institutional shareholding is lower in family firms when compared with non-family firms and it has decreased further between 2007 to 2017. As a block holder, institutional shareholders influence the governance and strategy of the firm; if they refrain from investing in family firms, the pursuit of governance will take longer.
Interestingly, the study shows a decline in shareholding of non-promoter, non-institutional shareholders, that is retail investors. It suggests that investors’ preferences might have further shifted to alternative asset classes like real estate, gold, and fixed deposits or they might be investing through institutional investors like the mutual funds.