New Delhi, July 28: Nudged by SEBI towards investor activism, mutual funds have begun opposing listed companies' proposals that are skewed in favour of their promoters, such as high salaries and unreasonable payments to group entities.
After collecting money from investors, mutual funds deploy the same into various asset classes including stocks and thus get voting rights equivalent to their shareholding in the key business decisions of listed companies.
According to latest voting disclosures, many fund houses including large players like Reliance MF and smaller ones such as Quantum MF, opposed certain proposals made by companies like Sun TV, Escorts, Jindal Steel, JP Associates, Pantaloon, ACC, Ambuja Cements and Gammon India.
The proposals that were opposed mostly included those related to top-brass salaries, payments or guarantees to promoters, and transactions involving group companies.
However, the quantum of proposals that have been opposed by the mutual funds still remain small, when compared to the instances of fund houses either abstaining from voting or supporting the management's stand.
SEBI has been persistently asking fund houses to exercise these voting rights and act as ‘guardians for small investors' by taking a stand against the company proposals that could be against the interest of minority shareholders.
The improvement in exercise of voting rights came after SEBI made it mandatory for fund houses to make public their votes on proposals put out for shareholders' approvals.
Enthused by MFs' improving voting patterns, SEBI is now exploring making it mandatory for insurers and other large institutional investors to disclose their voting patterns so that they can also be encouraged to exercise their votes.
Chairman U K Sinha recently said that SEBI would take up the matter with other regulators soon in this regard, so that institutional investors can act as ‘guardians' for small investors and become their voice at shareholder meets.
Sinha has also said that the companies need to ensure that the top-brass salaries reflect the true financial and operational strengths or weaknesses of the companies.
While investor activism by funds is not as prevalent in India as developed markets, it was the voice of opposition raised by institutional investors like mutual funds in late 2008 that ultimately led to unearthing of Satyam scam here.
According to Reliance MF's voting disclosure, the companies whose proposals it voted against during the last fiscal included Sun TV, Escorts, Themis Medicare, Shriram EPC, Gammon, JP Associates, ACC and Ambuja Cements.
The country's top fund house HDFC MF also proposed at least three proposals - made by JSPL, Elecon Engineering and Vascon Engineering, while ICICI Prudential MF also voted against a proposal made by Elecon.