Rally in the equities and gradual improvement in the stressed sectors of the economy like power and infrastructure has led to a sharp decline in the shares pledged by companies. In the BSE 500 universe, 107 companies have reduced their pledged holding since April 2015 of which 46 have brought the pledged holding to zero, data compiled from Capitaline showed. Among these, 46 companies have brought their pledged holding to zero during the period.
The data takes into account only the 178 companies in BSE 500 which have reported some pledge activity since Q4FY15.
Reliance Defence, Unitech,Tata Global Beverages and GMR Infra are some of the big players who have cut down their pledged holdings during the period. On the other hand, India Cements, Tata Communications, Amar Raja Batteries and Century Plywood are among the companies that have brought down their pledged holding to zero since April, 2015, data showed.
Stock movement is one of the key factors for increasing or decreasing the shares pledged by a company. For instance, a company has pledged ten shares worth Rs 10 each for a total value of Rs 100. If the shares rally to say Rs 20 apiece, the total pledged value would become Rs 200 and at this point pledge on five shares worth Rs 100 can be revoked.
“In the current market rally, broader markets have gained far more than benchmark indices. That is the reason why the current market capitalisation of all the BSE listed companies is close to 15 per cent more than what it was when Sensex touched its lifetime high. This clearly shows that shares of small and medium capital companies have gone up significantly. In such a case, part of their pledged shares could have been revoked,” said G Chokkalingam, Founder, Equinomics Research & Advisory.
Recovery in corporate earnings has also helped some companies to revoke the pledged shares. For instance, promoters of Jain Irrigation managed to bring down the percentage of shares pledged to 6.6 per cent from 21.4 per cent in FY15 thanks to the revival in the earnings of the company. Jain Irrigation reported a 129 per cent increase in the net profits on a trailing twelve month (TTM) basis ending December 2016. Similarly, increasing top-line has helped GMR Infra in reducing the pledged shares by 11 per cent to 46.9 per cent during the period.
Improving macroeconomic indicators and revival in the stressed sectors is expected to bring down the debt levels of the companies in the medium term, market experts said. While rebound in prices of basic materials is expected to help the metal companies, increased public sector spending on infrastructure space may provide a breather for real estate and infrastructure companies.
Interestingly, some of the big names have seen a steep increase in the pledged holding during the period. Three companies of Reliance ADAL group – Reliance Power, Reliance Infrastructure and Reliance Communications have seen a steep increase in the pledged holdings during the period. Percentage of shares pledged by Reliance Power has nearly doubled to 48.3 per cent in the last eight quarters while it has nearly tripled to 30 per cent in case of Reliance Communications. Shares pledged by Jindal Steel have increased 17 per cent in the last eight quarters. Bajaj Corporation has pledged 33.5 per cent of the shares during the period, data showed.