Promoter pledging hits three-year high in August at 1.86% of market cap

Value of pledged shares soared 56% to Rs 2.77 trillion in August from Rs 1.78 trillion at the end of July

Shares pledged by promoters as a percentage of India’s total market capitalisation rose to 1.86 per cent — the most since April 2017 — at the end of August 2020.

The value of pledged shares soared 56 per cent to Rs 2.77 trillion in August, from Rs 1.78 trillion at the end of July, according to data provided by primeinfobase.com.

Pranav Haldea, managing director, PRIME Database, said the increase was driven by creation of pledges in Hindustan Zinc and Vedanta.

Close to 13 companies witnessed an increase in the percentage of promoter holding being pledged, in August. On the other hand, Tirupati Forge (from 47.92 per cent) and Jyothy Labs (from 6.58 per cent) were the only two companies in which promoters brought down their pledge to zero. “High pledge levels are typically not considered a good sign by investors, given that a downturn in market price could lead to invocation and change in management,” said Haldea. Out of the 1,656 companies listed on the NSE, 463 had at least some shares pledged in August, up from 461 in July.

Though the value of pledged holdings saw a rise, the percentage of promoter holding pledged fell marginally from 12.43 per cent in July to 12.36 per cent in August.

At the end of the month, there were 29 firms that had 100 per cent of the promoter holding pledged. At the same time, 81 entities had over 90 per cent of the promoter shareholding pledged, while 192 others have more than 50 per cent of promoter shareholding pledged.

Among the top 200, entities with high promoter pledge include Hindustan Zinc (100 per cent of promoter holding pledged), Vedanta (99.99 per cent), Max Financial Services (91.31 per cent), GMR Infra (73.61 per cent), and Future Retail (73.47 per cent).

Last year, capital markets regulator Securities and Exchange Board of India had tightened disclosure norms pertaining to pledging.

It had mandated promoters to disclose detailed reasons for the encumbrance separately, in the instance of the pledge crossing 20 per cent of the total share capital of the company or 50 per cent of the total promoter holding.  

There are over 200 companies that are required to make such disclosures.