The companies in which promoters raised their stake include names like Wipro, Reliance Nippon, Infosys, MRF, Jindal Saw, Alkem Laboratories, Reliance Industries, Trent, and Atul Ltd, among others.
Markets might be trading near record highs but investors usually find themselves in the middle of one problem - what to buy now?
If you are looking to pick winners then a glance at an increase or decrease in promoter holding will help you shorten your list of stocks.
If we compare the data for the quarter ended September with the June quarter then promoters increased their stake in as many as 54 companies in the S&P BSE 500 index, AceEquity data showed as on November 1.
sAn increase or decrease in promoter holding brings stocks under investors’ radar. An increase in promoter holding is usually considered as a positive sign while a decrease is usually considered negative. However, the circumstances in which it was increased or decreased should be analysed before making an investment decision.
Nearly 70 percent of the companies in which promoters raised their stake gave negative returns in the last one year. Is it a sign of undervalued or attractive valuations?
Well, not all stocks could be termed as undervalued. The reasons to increase the stake could be many and one of them could be to support falling market price.
“Not all tocks are undervalued where promoters increased their stocks. Promoters are buying in Reliance at 52-week high which is a good sign and it may continue to outperform by looking at its future outlook in all business verticals. Similar case with NIIT technology, Thyrocare, Alkem Lab and Atul Ltd,” Santosh Meena, Senior Analyst at TradingBells told Moneycontrol.
“IT and Pharma names like Persistent and Sun pharma might be witnessing promoter buying because of their valuation attractiveness while buying in Mindtree and Shriram city union finance could be on account of acquisition and restructuring,” he said.
Meena further added that some names like Indiabulls Housing Finance and Shankara Building products are witnessing promoter buying because promoters are trying to support falling stock prices.
There are as many as 94 companies in which promoters reduced their stake which include names like HDFC AMC, SBI Life Insurance, SpiceJet, Can Fin Homes, Kotak Mahindra Bank, Bharti Airtel, HDFC Bank, Axis Bank, Avanti Feeds, among others.
Fall in promoter holding should not be necessarily seen as something negative by investors, suggest experts. Sometimes promoters sell their stake to meet regulatory requirements (below 75 percent) or bring down leverage.
“Fall or decrease in the promoter holding is not purely negative. In the last few quarters, we have seen many promoters have sold their stake to bring down leverage at the promoter level, which is positive for the company’s shares performance in long term,” Asutosh K. Mishra, Head of Research, Institutional Equity at Ashika Stock Broking told Moneycontrol.
“Many times decline in promoter stake is also due to raising incremental capital by the company to fund its capex or growth plan, which is negative for the company,” he said.
Other parameters which one should track:
An increase or decrease in promoter holding brings stocks under investors’ radar, which need to be analysed further before making any investment decisions. Investors need to analyse the reason behind the increase or decrease in promoter holdings, suggest experts.
“Most important things to look before pressing a buy or sell button is analyzing core performance of the company and its standing on valuation and return matrix within its peer group companies and market in general,” said Mishra of Ashika Stock Broking.
Meena of TradingBells is of the view that apart from promoter stake, quality of management, business model, level of debt, corporate governance, profit growth, market share, operating margin, cash flow are other key parameters which should be analysed while investing into any company.
Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Are you happy with your current monthly income? Do you know you can double it without working extra hours or asking for a raise? Rahul Shah, one of the India's leading expert on wealth building, has created a strategy which makes it possible... in just a short few years. You can know his secrets in his FREE video series airing between 12th to 17th December. You can reserve your free seat here.