The stock price decline this calendar has eroded the portfolios of most investors, but promoters of Indian companies, who form the largest category of shareholders, have been hit especially hard. They have seen the value of their holdings erode by ₹16,40,951 crore since the beginning of this calendar. This decline provides a good opportunity to promoters who wish to hike their stakes, to guard against hostile takeovers. But SEBI rules prohibit them from buying the shares of their companies around the time financial results are announced.

Promoters of 2,080 listed companies, for which shareholding data is available as on December 2019 on Cline database, held shares worth ₹76,93,923 crore towards the beginning of 2020. This accounted for 53 per cent of the entire Indian market cap, then. This value declined to ₹60,52,972 crore by April 13, thanks to the relentless decline in stock prices caused by the Covid-19 pandemic that is taking a toll on growth and corporate profitability. Promoters’ holding in Indian market cap has reduced to 50 per cent now.

The promoters of TCS have seen the steepest erosion, with a decline of ₹1,11,225 crore in the value of promoter holding in the company so far this year. RIL’s promoters rank second with ₹99,268 crore loss, followed by SBI, Bajaj Finance and Bajaj Finserv.

Promoters buying shares

The decline in stock prices offers a good opportunity to promoters to up their stakes. Almost 66 per cent of listed companies have promoter holding below 50 per cent. Around 22 per cent companies have promoters holding between 50-75 per cent.

When promoters buy their stocks in the secondary market, it helps in many ways. One, it provides a floor to the stock price fall. Two, it sends the message that they continue to believe in the fundamentals of the company; this helps instil investor confidence. Companies can also ward-off hostile takeovers or creeping acquisitions that become common when stock prices decline dramatically, like the way they fell this year.

SEBI rules can be relaxed

Promoters purchasing their own shares is however not possible until they declare the results for the March 2020 quarter. Many companies could declare the results towards the end of June, due to the leeway given by SEBI to companies to file their quarterly and annual results for the March quarter by June 30. This relaxation was given since many of the personnel of the companies are currently unable to attend work.

This dispensation has, however, created a problem for company insiders such as promoters, directors, officers and designated employees of the companies. They are not allowed to deal in securities of the company from the end of the quarter until 48 hours after the results are announced.

So, if companies declare their results late, promoters cannot buy the shares in the company until the results are declared. While many companies have requested SEBI to relax this rule this quarter, given the unique situation, the regulator is yet to do so.

It can be argued that the companies can declare the results sooner, in April or even May, to give their directors and employees the freedom to deal in the securities. But that may not be easy given the ongoing lockdown.

SEBI could, therefore, consider limiting the window — where insiders cannot trade in the securities of the company — to one month prior to the results and 48 hours after. This can provide some room to promoters who wish to purchase their own shares.