Mumbai: The record-breaking stock market rally in recent weeks has prompted promoters of several small and mid-level companies to sell a portion of the holdings in their companies. Founders of 140 small and midcap companies have offloaded some of their shares worth almost Rs 2,600 crore since October 1, according to an ET study.

Promoters generally part with their stakes only when their company’s valuations are rich. Similarly, they usually buy when they are gung-ho about their companies’ outlook.

“Sale of shares by several promoters of mid- and small-cap companies indicate that their valuations are at peak,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services.

The reasons for their selling, however, need not be just elevated stock values. They could be offloading the shares because it is the best source of funding at this juncture. “There may be several reasons for promoters to sell in the open market, but investors should watch those companies carefully,” said Agrawal On December 1, a promoter entity of Escorts, a farm equipment and engineering firm, sold nearly 3 per cent stake in the company for over Rs 252 crore through an open market transaction. Escorts shares have gained 106 per cent so far this year.

Similarly, Kamal Kishore Baheti, promoter of the tea company Mcleod Russel sold 1 crore shares on November 30, representing 9.14 per cent stake of the company for Rs 205 crore through bulk deal. Mcleod shares have gained more than 50 per cent in 2017.

Selling and buying by promoters is keenly watched by market participants as they are known to have the best insights about their companies’ prospects. In theory, purchase or sale by founders is probably a good signal for public shareholders.

Other promoters who have sold their shares include Mamy Philip of MRF, Dodla Varada Reddy of Oriental Hotels, Sachin Mulji of Great Eastern Shipping, Shreevar Kheruka of Borosil Glass Works, N Naga Ratna of Avanti Feeds, Dhruv Patel of Gujarat Apollo Industries.

“If promoters who are privy to the insider info of the company feel that the market value of their business is more than the fair value, then they could monetise a part of their stake and invest in some other business or asset classes, which is perfectly ok,” said Ajay Bodke, CEO portfolio manager, Prabhudas Lilladher.

Most of the stocks where promoters sold their stake have rallied sharply this year. For instance, Avanti Feeds’ stock gained 425 per cent so far this year while Arshiya, Action Construction, Vardhaman Special Steels and Maithan Alloys gained between 150 per cent and 300 per cent since January 1.