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India’s richest man, Aziz Premji, Chairman and CEO of Wipro, said today that he will lower his 82 percent stake in Wipro Ltd., the country’s third largest software exporter after TCS and Infosys. Markets welcomed his announcement and took the stock price up 3.4%, to touch the 52 Week high. Counterintuitive?

By Radha Kota.

Premji, 59, is ranked 38 in the Forbes list of billionaires with personal wealth valued at US$9.3 billion. In a press release Premji stated that he is going to cut his stake due to his philanthropic commitments.

I believe there are reasons other than this philanthropic commitment behind the move. For starters, there are the India’s Securities Board's (SEBI's) recent regulations requiring that at least 25% of any publicly traded company’s stock should be in the float. Another likely reason is pressure from insiders to release some of his control over the company. It has been speculated for a long time that Wipro’s previous vice-chairman and chief of Wipro America, Vivek Paul, who helped build the Indian company from a $150 million software-services provider into a $1.4 billion powerhouse, left Wipro mainly due to Premji’s dominance.

I don’t know any one in the U.S. that owns 82 percent of a major publicly traded company. Please reply to this post if you do.

Whatever the reason may be, markets like liquidity and thus generally like a larger float. As the total number of shares will not increase, the P/E is not affected. In summary, this is a short term positive and a long term non-event.

Premji is a graduate in electrical engineering from Stanford University, is known to be a taskmaster who likes to keep his fingers on the pulse of the business. After his father passed away in 1966, Premji took on leadership of Wipro at the age of 21 and built the $1.5 million oil company into $1.4 billion IT Services and BPO company.

[IndiaStockBlog contributor Radha Kota]

Source: India's Richest Man Cuts Stake in Wipro (WIT)