Buy 150 million shares for Rs 2,000 crore in 73 BSE-500 companies.
The equity market sentiment may be weak, but promoters seem to be showing confidence in their listed firms. Promoters of top corporate houses or groups such as Tata, Bajaj, Vedanta, Anil Ambani’s Reliance group, Mahindra & Mahindra, Bharti, Jindal and Jaypee, put together, have together spent about Rs 2,000 crore to increase holding in their companies in the September quarter.
Experts say such a trend of promoters increasing their holding has not been seen in recent quarters, adding lower stock prices and a desire to enhance control or reinforce investor confidence prompted them to raise their holdings. Among the prominent companies, promoters of Mahindra & Mahindra, Tata Motors, Tata Steel, TCS, Sterlite Industries, Bharti Airtel, Bajaj Holdings and Jindal Steel & Power have acquired shares in their own companies through open market purchases in the quarter ended September (Q3), as the equity market reported its sharpest quarterly fall in the past two and a half years. The BSE Sensex lost 12.7 per cent during the quarter, its worst quarterly loss since the December 2008 quarter (when the index crashed 25 per cent due to the global financial crisis).
| GONE SHOPPING (Promoters’ holding in %) | |||
| June* | Sept* | chg (bps) | |
| NIFTY COMPANIES | |||
| M&M | 24.86 | 25.18 | 32 |
| Jindal Steel | 58.39 | 58.60 | 21 |
| Tata Motors | 34.84 | 35.05 | 21 |
| Sterlite Inds | 53.16 | 53.31 | 15 |
| Tata Steel | 30.60 | 30.71 | 11 |
| Bharti Airtel | 68.30 | 68.34 | 4 |
| JP Associates | 46.85 | 46.89 | 4 |
| OTHERS | |||
| Zylog Systems | 36.68 | 41.22 | 454 |
| Provogue (India) | 42.25 | 45.33 | 308 |
| Bombay Dyeing | 49.65 | 52.60 | 295 |
| Graphite India | 57.23 | 60.00 | 277 |
| Bajaj Holdings | 38.11 | 40.01 | 190 |
| *End of the respective quarter Source: BSE bps = basis points, 100 bps make one percentage point | |||
“Promoters hiking stakes indicates confidence in their companies and sends a positive signal to investors. They have benefited from market regulator Securities and Exchange Board of India’s revised guidelines on creeping acquisitions,” says Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities.
Promoters may want to hike their stake to increase management control over the company, support plummeting share prices, or simply because they find a certain price level attractive to raise their stake as they can foresee a positive future for the company and have the cash to back it up, he says.
By Sebi regulation, a promoter can buy up to five per cent equity of his company in any particular year from the stock market through the creeping acquisition route, to increase stake up to 75 per cent.
“The promoters know more about their company. The increase in promoters’ holdings is a clear signal of the value present in companies after the correction witnessed in their stock prices over the last few quarters,” said Ashish Mittal, fund manager, PMS, Centrum Wealth Management.
Apart from frontline stocks, promoters of relatively small firms such as IVRCL, Parsvnath Developers, Lanco Infratech, EIH, Hotel LeelaVenture and Crompton Greaves also acquired shares from open market purchases. On the other hand, promoters of Reliance Infrastructure, Deccan Chronicle Holdings, HEG, FDC and Zee Entertainment also saw an increase in their holding as their firms bought back shares from investors (through the share buyback route).
According to information filed by the companies with the stock exchanges, promoters of 73 companies that are part of the BSE-500 index acquired around 150 million shares valued at around Rs 2,000 crore. On the other hand, the owners of only 17 companies offloaded shares worth Rs 55 crore in the September quarter. Interestingly, foreign investors have sold shares (net) worth Rs 10,565 crore during this period.
For the study, only those cases where the promoters acquired shares through open market purchases or hiked their stakes via the buyback route were considered (preferential allotment cases have not been included).
The total value of stake bought or sold by the promoters is based on the average share price of the company between July and September.
Of the 353 companies considered in the study, in 73 firms promoters increased their stake. Eight of those are part of the S&P CNX Nifty. In 17 companies, promoters reduced their stake, while in the remaining 263 firms their holding remained unchanged.
Experts say attractive valuations will lead promoters to continue to buy shares from the open market by creeping acquisition to reinforce confidence as many of these stocks have fallen faster than the Sensex.
Among smaller firms, Zylog Systems saw the biggest increase in promoter holding. Promoters of the company increased their holding in Zylog by 4.54 percentage points to 41.22 per cent in Q3. The company says this is a positive development, and a reflection of its strong profitability.
Promoters of Crompton Greaves increased their holding to 41.69 per cent from 40.93 per cent after the share price almost halved from June 2011 level due to weak financial performance and concern over governance.
Meanwhile, the promoters of Max India and Bombay Rayon Fashion have increased their stakes through conversion of warrants into equity shares.
