 "bse, sensex, bull")
The rally in equities and gradual improvement in stressed sectors of the economy such as power and infrastructure have led to a sharp decline in shares pledged by promoters of companies.
At the end of the December 2016 quarter, in the BSE 500 universe, 107 companies had reduced their pledged holding compared with December 2015. Of which, 46 had brought the pledged holding to zero, showed data compiled from digital corporate compiler Capitaline.
The data take into account 178 companies in the BSE 500 which reported some pledge activity since the December quarter of FY15. The BSE 500 index has rallied five per cent during the period.
The promoters of Reliance Defence, Unitech, Tata Global Beverages and GMR Infrastructure are some of the big ones which have cut their pledged holdings during the period. India Cements, Tata Communications, Amara Raja Batteries and Century Plyboards are among those where promoters' pledged holding stands reduced to zero in the period, the data showed.
Stock movement is a key factor for increasing or decreasing the shares pledged by a company. For instance, consider a promoter who has pledged 10 shares worth Rs 10 each, for total value of Rs 100.
If the shares rally to Rs 20 apiece, the total pledged value would become Rs 200 and, at this point, the pledge on five shares worth Rs 100 could be revoked. The promoters can also get higher dividends if the company's financials improve, which can ease their personal debt burden, the reason they pledge their shares.
“In the current market rally, the broader markets have gained far more than the benchmark indices. That is why the current market capitalisation of all the BSE listed companies is close to 15 per cent more than what it was when the (benchmark) Sensex touched its lifetime high in March 2015. This clearly shows that shares of small-cap and mid-cap companies have gone up significantly. In such cases, a part of their pledged shares could have been revoked,” said G Chokkalingam, founder, Equinomics Research & Advisory.
The recovery in corporate earnings has also helped some promoters revoke the pledged shares in their companies. For instance, the promoters of Jain Irrigation managed to bring down the percentage of shares pledged to 6.6 per cent, from 21.4 per cent in FY15, thanks to a revival in the company's fortunes. It reported a 129 per cent increase in net profit on a 12-month basis ending December 2016; the stock price gained 30 per cent between December 2016 and December 2015.
Similarly, the promoters of Jyothy Laboratories managed to revoke close to 10 per cent of the pledged shares as its net profit grew more than 50 per cent in the past two years.
“There is no broadbased recovery in earnings yet. However in the mid-cap and small-cap space, there are a few bright spots. These companies have managed to stage some turnaround,” said Sunil Shah, head of research at Axis Securities. He adds the markets might still be two or three quarters away from earnings recovery.
Interestingly, some big names have seen a steep increase in the pledged holding during the period. Three companies of the Anil Ambani group – Reliance Power, Reliance Infrastructure and Reliance Communications -- have seen a steep increase in pledged shares during the period. The percentage of shares pledged in RPower nearly doubled to 48.3 per cent between the end of 2015 and 2016, and nearly tripled to 30 per cent in RCom. The promoters of Jindal Steel saw their pledged shares increase 17 per cent in the same period.
The promoters of PC Jeweller, Coffee Day Enterprises and Crompton Greaves, who didn't have any pledged shares in December 2015, saw a significant portion of their holdings being pledged.
