22 October, 2008

Indian stock markets have been in a continuous slide since the beginnging of 2008. This has left most retail and institutional investors in jitters. Stock market investors do not seem to have the nerve any longer to invest in stocks.

Stock valuations in certain sectors and companies have become really mouth watering. The promoters of Indian companies have used the recent downswing in stock prices as an opportunity to buy shares of their companies cheaply to enhance their holdings in the company. The stock prices of many companies are ruling at a value of less than one-fourth of their peak in January.

The shareholding pattern for the quarter ending September 2008 shows that in several companies, promoters have raised their stakes substantially. Even though it is hard to find big names, several promoters of mid and small-cap companies have hiked their stakes ranging from 1-20% during the September quarter compared with the previous quarter.

Promoters have increased their stake holding in Entegra, Mafatlal Finance, GEI Industrial Systems, California Software, NDTV, House of Pearl Fashions, Orchid Chemicals, Uttam Galva, Philips Carbon, Granules India, Gateway Distriparks and Aarti Industries.

With stocks of many companies now on offer at significantly lower rates, way below their peak levels in January this year, more promoters are likely to take either the creeping acquisition or the buy-back route to bolster their holdings, says an analyst.

Promoters use open market purchases to buy from the market, depending upon liquidity in the counter and access to funds.

In some cases, promoters are raising their stake to ward off potential takeover threats. Take the case of Orchid Chemicals, where promoters have raised their stake to over 21% from around 16% in the last quarter.

Other instances recently where promoters or promoter groups have mopped up shares from the secondary market include Holcim of ACC, the Sheths of GE Shipping and Biyanis of Pantaloon Retail.

Some promoters have, in fact, been so aggressive that they have bought close to 5% stake in their companies, almost exhausting the creeping acquisition limit, which provides for a promoter to buy up to 5% equity annually, subject to a ceiling of 55%.

“Some promoters trying to make the best out of depressed stock prices, by buying at lower levels in the choppy stock market. They are buying large quantities of beaten-down shares with the intention of increasing their holding in their companies,” a market observer said.

If the promoters are buying their own stock at the current market price then long term stock market investors also must use this opportunity. Stock markets will tablize sooner or later and this might be a golden chance to buy  beaten down stocks. One must give a look to those shares where the promoters are confident enough to buy their own equity from open stock market.