Equity markets around the globe have been under pressure on account of trade war fears, interest rate hike and valuation concerns
While investors have been worried about returns amid steep market fall, some promoters have used the opportunity to increase stake in their companies during the September quarter.
Promoters of as many as 74 companies in the S&P BSE 500 index raised their stake in the second quarter. These stocks have fallen up to 80 percent in 2018 and on quarter-to-date basis, data from AceEquity showed.
Companies in which promoters raised their stake include Manpasand Beverages, Infibeam Avenues, HCC, Indiabulls Real Estate, Tata Motors, DB Corp, The India Cements, Dish TV, BPCL, Bharat Electronics, IDFC Bank, Indiabulls Housing Finance, Ashok Buildcon, CEAT, and Punjab National Bank .
Most of the stocks which fell in double digits are small & midcaps. The fact that promoters are betting on their firm is a sign of confidence and after a double-digit fall, the valuations have also come down.
But, does that make them an attractive buy? Maybe not. Investors should do their own research before putting money in stocks which saw a rise in promoter holdings.
“Generally, it is a positive development for an investor but it should be followed by self-research to take an investment call. It usually happens when promoter foresees potential value or future growth in business which is expected to realise in future,” said Dinesh Rohira, Founder & CEO, 5nance.com told Moneycontrol.
“However, investors shouldn’t fall prey to false information related to value or growth in business, and they must do a diligent study to justify the stance of promoter raising the stake,” he said.
We have a list of 30 stocks out of 74 in which promoters increased their stake in the September quarter:
On the flip side, promoters decreased their holding in 87 companies in the S&P BSE 500 index including 8K Miles, Ajanta Pharma, Axis Bank, Avanti Feeds, Cipla, Cyient, DLF, Dr Reddy’s Laboratories, Eicher Motors, Kotak Mahindra Bank, JustDial, M&M, MindTree, MOSL, NATCO Pharma, NIIT Tech, Yes Bank, and Wockhardt.
Equity markets around the globe have been under pressure on account of trade war fears, interest rate hike and valuation concerns.
The domestic equity market also declined more than 10 percent from August peak while stocks also eroded a substantial wealth. Investors lost more than 6 lakh crore in terms of market capitalisation on the BSE in October alone.
On BSE, as many as 383 stocks saw a rise in promoter holding for the quarter ended September 2018 including Omkar Speciality (down 86% in 2018), Sintex Plastics (down 68%), and Mcnally Bharat (down 77%).
After hitting record highs in August 2018, benchmark indices have now corrected more than 14 percent triggered by a weak rupee, rising crude oil prices, trade war concerns, FII outflows and high valuations.
“Post this steep price correction in the broader markets, there is certainly value emerging in some the stocks as indicated by their promoters’ activity in the open market,” Soumen Chatterjee, Director- Research, Guiness Securities told Moneycontrol.
“Promoters have raised stake in many beaten-down names signaling that the promoters believe that their stock is trading below its intrinsic value,” he said.
Why do promoters raise stake?
Promoters could raise their stake in the company due to a variety of reasons, but usually, it is done when they find value or the market price is below the intrinsic value, suggest experts.
Analysts advise investors to examine the fundamental health of underlying company in terms of sustainability, earnings growth, exposure towards debt, and consistency of return on equity before putting money in stocks which saw a hike in promoter holding.
“The reason for raising stake by promoter may differ at times but the primary reason is when they find value in business or possibility of a positive turnaround in a future course. Promoters may also carry out this activity to prevent from possible hostile acquisition by other business,” said Rohira of 5nance.com.
