Promoter share pledging rises in Q1

Pledging of shares by promoters increased in the June quarter, even as the markets rallied 5%. The percentage of promoter-pledged holding in the BSE 500 companies rose to 9.3% in June 2017 from 9.1% in March. At the end of June 2017 quarter, promoters had pledged shares worth Rs 1.86 lakh crore, 1.6% of the market capitalisation of the BSE 500 companies, says Kotak Institutional Equities in a report. Among the BSE 500 companies, promoters of only 136 companies have pledged their holdings. Among these, seven have pledged more than 90% of their holding.
 
Explanation
 
Pledging of shares does not necessarily imply that a firm or a promoter is under financial stress; banks (lenders) could have sought additional security in the form of promoters’ shares, says the Kotak report.
 
Caution
 
High promoter pledges could be a risk if markets go into correction mode. “If a stock price falls, the promoter has to provide additional margin in the form of more pledged shares or cash. Failing which, the lender might start liquidating the shares in the market, leading to a sharp fall,” explains a broker.
 
Samie Modak offers an insight: 

Sources: Prime Database, BSE, NSE, Kotak Institutional Equities