Pledging of shares by the promoter group is not new but investor sentiment has turned cautious on those companies which have a high amount of pledged promoter holding
In news that would bring cheer to investors, data reveals that promoter pledged holdings in BSE 500 constituents has fallen in value terms quarter-on-quarter.
The percentage of pledged promoter holdings declined to 2.47 percent in the April-June quarter as compared to 2.83 percent in the January-March quarter, Kotak Institutional Equities said in a recent note. Outstanding pledged shares by promoters stood at 1.73 trillion, or about 1.21 percent of BSE 500’s market capitalisation as at June-end.
Pledging of shares by the promoter group is not something new and must not be seen as a bad practice, but in the backdrop of rising defaults by companies, investors have turned cautious on such companies.
Companies often adopt such a practice to meet their liquidity needs, but at a time when the economy is showing signs of a slowdown, companies with high promoter pledge could add to your risk.
Kotak too clarified 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 promoter shares,” it emphasised.
Vinod Nair, Head of Research at Geojit Financial Services, explained that a fall in pledge shares by promoters provides a sense of security and indicates an improvement in the financial position of the company.
A fall in promoter pledges is a good omen and investors must consider this as a positive signal while arriving at an investment decision. The top 30 companies in which promoters reduced their holding by over 10 percent in the June quarter include CG Power and Industrial Solutions, Sterlite Technologies, Indiabulls Real Estate, Himatsingka Seide, India Cements, Sadbhav Engineering, Indiabulls Housing Finance, Advanced Enzyme Technologies, Jubilant FoodWorks and Adani Ports.
Romesh Tiwari, Head of Research at CapitalAim, said a decline in pledged holdings combined with a fresh infusion of capital from the promoter group will generate trust and shows the promoters’ commitment towards the company.
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