The Sensex remained subdued for the most part of 2016 and promoters used the opportunity to accumulate or increase stake.
Hunting stocks in a market which is consistently hitting record highs almost on a daily basis becomes a tedious task. But, staying with winners has always turned out to be the right strategy for investors who are looking to find value in an overbought market.
Indian market swung from underperformance to outperformance in the last one year weighed down by US Presidential elections, Brexit, demonetisation etc. which led to a sharp correction in benchmark indices in the second half of 2016.
But, that did not deter some promoters to increase stake in their own companies in the last 4 quarters. As much as 36 companies saw promoters increasing their stake in the CNX 500 index in the last one year.
The S&P BSE Sensex rose 14 percent in the last one year. It remained subdued for the most part of 2016 and promoters used the opportunity to accumulate or increase the stake in their own companies on dips.
Small and midcap stocks saw most of the action with respect to hike in promoters’ stake. Stocks in which promoters raised stake and has also more than doubled investors’ wealth include names like Everest Organics, Visaka Industries, Bhageria Industries, West Coast Paper, Samrat Pharma, Organic Coating etc. among others.
“Promoters raising stake through market acquisition or other available means is generally a good sign. One should be cautious to the extent that same holding is not simultaneously pledged to raise the stake, which basically means that the promoter is eyeing for some short term gains in stocks,” Rakesh Tarway, Head of Research, Reliance Securities told Moneycontrol.
“By and large promoters buy their own stock only if he is confident of a better future about his business. Since a promoter is a thorough insider he knows better than any outsider about his business,” he said.
Rise in promoter stake is a good sign from a fundamental point of view as it signifies confidence of the management in the company at current valuations when they made the purchase.
And if the promoter or the promoter group are raising the stake in their company regularly then it can be safely assumed that there is some value in the company.
By Sebi regulation, a promoter can buy up to 5 percent equity of his company in any particular year from the stock market through the creeping acquisition route, to increase stake up to 75 percent.
“Generally it is a good sign if promoter increases his stake in the company. It reflects the promoter’s confidence on the company’s future prospects. Not to forget that Promoters are the biggest shareholders in their companies and they have all the information about their companies,” Sanjeev Jain, AVP - Equity Research at Ashika Stock Broking Ltd told Moneycontrol.
“I believe before making an investment in a company just only on the basis of promoter stake buying; an investor must look for the reason of promoter’s stake buying and also go through the company’s financials and its future business road-map,” he added.
Jain further added that if company’s sound fundamental and the reason for promoters’ stake buying are satisfactory, then one can invest in the company. It is an important parameter so investors must keep an eye on it.
For the quarter ended June, some 270 companies increased their stake on a quarter-on-quarter basis which includes names like Shakti Pumps, MEP Infra, Simplex Infra, Can Fin Homes, Punjab Alkalies, Balaji Telefilms, Chambal Fertilisers, Dalmia Bharat among others.They kept the stake constant in over 1800 companies on the NSE while decreased their stake in nearly 400 companies which include names like Indiabulls Ventures, Indiabulls Real Estate, Avanti Feeds, Ansal Properties, Emkay Global, Geojit Financial Services, Man Industries, V-Mart, Team Lease, Godrej Properties, PNB Housing, Sintex Industries, JM Financial, Muthoot Finance etc. among others.
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