What Is Minimum Public Shareholding (MPS) and Why It Matters

Minimum Public Shareholding (MPS) is a regulatory mandate set by SEBI that requires all listed companies in India to maintain a minimum level of non-promoter ownership. This rule ensures that a company’s shares are adequately available to the public for trading, which in turn improves transparency, liquidity, and market efficiency.Minimum Public Shareholding (MPS) requires listed companies to maintain at least 25% of their equity shares held by public shareholders to ensure market liquidity, fair price discovery, and good corporate governance. This rule promotes a broader shareholder base, enhances market transparency, and reduces the risk of price manipulation.

In this article, we explain what MPS is, how it works, and why it’s essential for companies and investors alike.

MPS refers to the minimum percentage of shares that must be held by public shareholders in a listed company. As per SEBI norms, all listed companies must ensure that at least 25% of their total issued equity shares are held by the public — that is, non-promoter investors.

This requirement applies to:

• All companies listed on stock exchanges like BSE and NSE
  

• Companies that go public through an IPO
  

• Existing companies that undergo mergers, demergers, or restructuring

The MPS rule serves several key regulatory and market objectives:

Enhancing Liquidity

With more shares held by the public, there is greater scope for regular trading activity, leading to healthier price discovery.

Improving Governance

Wider ownership encourages better corporate governance as companies become accountable to a larger and more diverse set of shareholders.

Preventing Price Manipulation

Higher public float reduces the scope for price rigging or manipulation by a concentrated group of stakeholders.

Aligning With Global Norms

MPS helps align Indian markets with global standards where public float is often a prerequisite for index inclusion and institutional participation.

The Minimum Public Shareholding (MPS) rule ensures broader market participation—here are its key provisions:

Note: Certain companies, such as Public Sector Undertakings (PSUs), were earlier given extended timelines to meet this requirement.

Companies that fall short of the MPS threshold must take corrective action using one or more of the following methods:

Offer for Sale (OFS)

Promoters sell part of their stake directly in the secondary market via stock exchanges.

Qualified Institutional Placement (QIP)

Shares are issued to institutional investors, reducing promoter holding.

Rights Issue to Public

New shares are issued to existing shareholders (excluding promoters) to raise public participation.

Bonus Issue to Public Shareholders

Additional shares are issued without payment to boost public ownership proportionally.

IPO or FPO

For companies newly listing or expanding capital, MPS can be achieved through public issuance.

SEBI imposes strict penalties on companies failing to meet MPS norms. These may include:

• Fines on the company and its promoters
  

• Freezing of promoter shareholding
  

• Restriction on corporate actions like mergers or buybacks
  

• Suspension from trading in extreme cases
  

The regulator has also directed stock exchanges to monitor and enforce MPS adherence actively.

These steps are part of SEBI’s broader mission to improve market depth and investor protection.

• Over the past decade, SEBI has tightened MPS enforcement for both private and public sector companies.
  

• The use of OFS and QIPs has increased among companies looking to comply.
  

• SEBI has provided temporary relief in special situations, such as during market disruptions or large mergers.
  

• Discussions have been held to potentially increase the MPS requirement beyond 25% in future phases.

For investors, meeting Minimum Public Shareholding (MPS) norms brings both advantages and considerations:

Better Price Discovery

A wider ownership base and improved liquidity help reflect a company’s true value in its stock price.

Increased Participation

Retail and institutional investors get more access to company shares due to higher public float.

Risk Reduction

MPS compliance signals regulatory alignment, reducing risk associated with concentrated ownership.

However, sudden actions taken to comply with MPS (e.g. large OFS) can cause short-term price volatility.

Minimum Public Shareholding (MPS) is more than just a compliance rule — it is a cornerstone of transparent, accessible, and efficient capital markets in India. By ensuring that at least one-fourth of a listed company’s shares are available to public investors, SEBI fosters healthy trading volumes, discourages price manipulation, and enhances investor trust. For investors, understanding MPS can offer insights into a company’s governance, regulatory standing, and long-term stability.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.