Pledged promoter (majority shareholder) holdings of nearly 30 of the BSE-500 companies increased by as much as 50 percent quarter-on-quarter in March.
Companies where promoters increased their pledged holding include Granules India, KPIT Technologies, JBF Industries, CG Power, Reliance Communications, NCC, HCC, Fortis Healthcare, 8K Miles, Omaxe, Adani Enterprises, Strides Shasun, among others.
The overall percentage of pledged holdings of these BSE-500 companies, however, was lower at 9 percent in March 2017 compared to 9.3 percent in December, Kotak Institutional Equities said in a note.
Promoters pledged shares worth Rs 1.8 lakh crore, which is about 1.6 percent of the total BSE-500 Index's market capitalisation in March 2017.
About 7 of the 135 BSE-500 companies, where promoters pledged their holdings, had more than 90 percent of their holdings pledged.
Promoters who pledged more than 95 percent of their holdings include companies like Bajaj Hindusthan, CG Power and Industrial, Reliance Defence, Suzlon Energy, Videocon Industries and RattanIndia Power.
Pledging of shares is common in companies where promoter holding is high and does not warrant a sign of caution. The ownership is usually retained by promoters, but if there is a sizeable chunk pledged then it trigger a volatile price movement in a falling market.
“We clarify that pledging of shares does not necessarily imply that a company or a promoter is under financial stress; banks (lenders) could have sought additional security in the form of promoters’ shares,” the Kotak note said.
There are also companies where promoters decreased their pledged holding in the March quarter. These include Future Consumer, Rain Industries, Reliance Power, Future Retail and Adani Power etc. among others.
The Kotak report also highlighted companies in the Nifty-50 with more than 5 percent of the pledged promoter holdings like Adani Ports & SEZ (29.6 percent), Asian Paints (14.6 percent), Indiabulls Housing Finance (12.5 percent), Tata Motors (5.9 percent), Tata Steel (5.7 percent) and Zee Entertainment (39.3 percent).
Increase in pledged holding is certainly risky because these shares are often given in the form of a security. And, if the share prices falls below the mark value of the investment, the overall value of the pledged collateral falls.
When the value of the collateral falls, banks or financial institutions could demand from promoter to produce more assets as collateral. Which in some cases lead to selling of shares.
But, in case, the promoter is not able to meet the obligations, the ownership of shares is transferred to the lender, who may then sell shares to recover loans.