New Delhi: What is the correlation between promoters increasing their
stakeholding in companies and the consequent impact on the company’s share price?
Usually, an increase in promoter stake is seen as a sign of confidence in the company by the promoter group and is sometimes used as a tactic to give confidence to the markets that the promoters see value in the company when the price is depressed.
Nine companies in the BSE 500 saw an increase in promoter holding during the march quarter compared to the December quarter of 2019. These companies also saw an increase in the share price between December and May.
According to a report by LKP Securities, Aurobindo Pharma, JB Chemicals, Deepak Nitrite, Vaibhav Global, Mindtree, Tata Consumer, Sun Pharma, Deepak Fertilisers and Bajaj Electricals are among the nine companies where the promoters stake increased between December and March and the stock price increased between December 31-May 20.
Aurobindo Pharma was up by 55 per cent, JB Chemicals up by 52 per cent and Deepak Nitrite were among the top three gainers although the promoter stake only increased marginally by 0.14 per cent, 0.23 per cent and 0.05 per cent respectively.
There is also a category of 12 companies where the promoter stake increased during the quarter and the stock price decreased during the last five months.
According to LKP Securities, NCC was down 61 per cent, HFCL was down 48 per cent, GHCL was down 47 per cent, Jagran Prakashan was down 41 per cent, Tata Power was also down by 41 per cent, Godrej Industries down 41 per cent, Tata Steel down by 40 per cent, Just Dial down by 38 per cent, Godrej Agrovet down by 31 per cent and GMR Infra, Chambal
Fertilisers and Dishman carbogen down by 18 per cent, 11 per cent and 10 per cent respectively.
In addition, in the BSE 500 universe there are 11 companies where the promoter stake went down and so did the stock price.
Unlike the previous categories, there is a steep cut in the promoter stake in this category. The price cuts also steep From December 31 to May 20.
The promoter stake in Future Retail was down from 47 per cent in December 2019 quarter to 40.3 per cent in the March quarter by 6.7 per cent. The stock price was down by a substantial 79 per cent from Rs 342 on December 31 to Rs 71 on May 20.
Prestige Estates promoter stake was down by 4.52 per cent and the stock price was down by 59 per cent.
Aditya Birla Capital was down 57 per cent, Cholamandalam Investment was down by 56 per cent, IIFL Finance was down by 52 per cent, Aavas Financiers down by 48 per cent , KEI Industries down by 40 per cent.
Persistent Systems, Westlife Development, Metropolis Healthcare and Sudarshan Chemical were down by 23, 16, 12, and 11 per cent respectively.
The converse also holds true in some cases where promoter stake has gone down but the stock is up. According to LKP Securities research, there are five such cases, Navin Fluorine up by 49 per cent, Bharti Airtel up by 30 per cent despite stake down by 3,72 per cent, Laurus Labs, Dixon Technologies and Eris Lifesciences up by 28, 16 and 0.3
per cent respectively.
