Historically, the passivity of institutional investors in India has led to less than significant monitoring of managements and controlling shareholders of companies. However, as I had noted in an earlier paper, the Indian markets began witnessing greater levels of shareholder activism in more recent years. Among the regulatory efforts that have engendered activism, one relates to a 2010 circular issued by the Securities and Exchange Board of India (SEBI) to mutual funds requiring them to disclose their voting policies and their manner of exercising of voting rights in individual investee companies.
Last month, another regulator, the Insurance Regulatory and Development Authority of India (IRDAI) issued a circular to all insurance companies to comply with a stewardship code to be implemented by the IRDAI. The circular provides “that insurance companies should play an active role in the general meetings of investee companies and engage with the managements at a greater level to improve their governance. This will result in informed decisions by the parties and ultimately improve the return on investments of insurers.” Beginning the financial year 2017-18, insurance companies are required to come out with a policy regarding their position at general meetings of investee companies, and disclose the same publicly. The stewardship code will be implemented on a “comply-or-explain” basis.
The Institutional Investor Advisory Services (IIAS) has a detailed analysis on the IRDAI’s circular and the impact it is likely to have on the Indian capital markets. Given that insurance companies are large institutional investors in Indian companies, this move would push the Indian markets further towards increased shareholder activism.