Promoters use tepid market conditions to hike stake in group firms

A total of 205 large, mid-and small-cap firms saw their respective promoters hike stake in their group companies via open market purchases in the last financial year 2018 – 19 (FY19).

Among the large-caps, Tata Motors, Bajaj Auto and JSW Steel saw their promoters hike stake in the last financial year, Srikalahasthi Pipes, Nandan Denim, Bodal Chemicals, Waterbase, Trident, WPIL, Sangam (India) and Voltamp Transformers that comprise the S&P BSE Small-cap index saw their respective promoters up their stake in the range of 2 per cent to 4 per cent during FY19. (See table below)

Most of these mid-and small-cap stocks have seen their market prices fall by up to 66 per cent till February 18, 2019 – when the S&P BSE Small-cap index hit its 52-week low level – from their respective levels on March 28, 2018.

The S&P BSE Small-cap index has underperformed the market and slipped 12 per cent during financial year 2018 – 19 (FY19). The S&P BSE Midcap index also lost 3 per cent, as compared to 17 per cent rise in the S&P BSE Sensex during FY19.

“Promoters could have hiked stake in companies across the board given the market conditions, especially in the mid-and small-cap segment where the going was tough. The fall in stock prices made valuations attractive for them to buy via open market purchases. This strategy, at times, is also adopted to instil confidence among investors regarding the business prospects,” says G Chokkalingam, founder and managing director at Equinomics Research.

Among individual stocks, promoters’ total holding in Tata Motors increased to 38.37 per cent in FY19 from 36.37 per cent at the end of March 2018 quarter. Tata Sons, the largest shareholder in Tata Motors, hiked its stake by 2 per cent to 35.3 per cent from 33.3 per cent.

“One needs to evaluate this on a case-to-case basis. Promoters generally hike stakes in case they feel the stock price is beaten down excessively, which in turn, presents them with an opportunity to hike stake. A good example is Tata Motors, where the largest shareholder increased stake. Auto, as a segment, has seen a dip in demand as evidenced by the fall in monthly sales volume,” explains A K Prabhakar, head of research at IDBI Capital.

Between September 7, 2018 and February 7, 2019, Tata Motors tanked 45 per cent at the bourses, as compared to 5 per cent decline in the benchmark S&P BSE Sensex. On the other hand, in Bajaj Holdings & Investments, the promoters increased their holdings by 4.71 per cent to 49.03 in March 2019 from 44.32 per cent at the beginning of fiscal.

As a segment, Chokkalingam expects the mid-and small-caps to outperform their large-cap peers over the next few months if the election outcome does not spring a negative surprise. “Retail investors will come back to the market and are likely to invest in the mid-and small-caps if the election outcome is as per market expectations,” he says. 

Jayant Manglik, president – retail distribution at Religare Broking, too, advocates this strategy and expects the markets to remain volatile in the near-term given the earnings outcome and progress on the general election front. 

“We believe that any correction in quality large / mid cap companies with strong growth prospects should be considered as a good buying opportunity for long-term investors,” Manglik says.

Company	Stake in %	Change (%)
Bajaj Holdings	49.03	4.71
Tata Motors	38.37	2.00
Adani Power	74.97	1.90
Bajaj Auto	51.18	1.88
GMR Infra.	63.22	1.56

*Stake as on March 31, 2019 ; PPP- Percentage points; Stocks from S&P BSE200 index

Source : CapitalinePlus, Shareholding pattern