In a season of bad loans and weakening asset quality, India Inc appears to be pledging more shares to raise funds, if latest available share pledge data is anything to go by.
A number of companies saw an increase in promoter share pledges during the quarter gone by, while a few others saw a dip in share pledge levels.
As many as 79 BSE-listed companies were found to have increased share pledges during the March quarter compared with 74 in the October-December period.
While share pledging is a normal practice in corporate finance to raise resources, high levels of share pledges often turn investors cautious as they reflect on weakness in a company’s financial clout.
In a falling market scenario, share pledge levels can go up, as falling values of pledged shares may trigger margin calls.
In the worst-case scenario, too much of a drop in share price and a company’s inability to honour margin calls may even lead to open market sale of pledged shares, leading to wealth erosion for investors.
According to a report by Edelweiss Securities, some 72 companies reported a drop in share pledge levels during March quarter compared with 105 in December quarter.
Among the companies that saw the biggest rise in share pledges were Prakash Industries, Cox & Kings, Emami, Advance Enzymes and Adani Ports, among others. Some of these companies had also seen a rise in share pledge levels in December quarter.
Rise in promoter pledge shares
Meanwhile, Renuka Sugar, Jubilant Lifesciences, Sanghi Industries, Jubilant Foodworks and Jindal Steel, among others, saw a substantial drop in share pledge levels.
The Edelweiss report also showed that companies like Bhansali Engg, Pidilite Industries, Bajaj Holdings, Indiabulls Ventures, JM Financial, Alembic Pharma, Raymond and VRL Logistics had no promoter stake on pledge and some of them, in fact, saw promoter holding go up during the quarter.
Sectorwise, utilities companies had maximum promoter holding share on pledge followed by consumer discretionary firms, the report said.
Sectorwise Pledge as percentage of Market Cap Utilities
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