Promoters cash in on rally, offload company shares

The Nifty has rallied 10% in the last three months, while the Nifty Midcap 100 and Nifty Smallcap 100 indices have risen 18% and 20%, respectively, during this period.

On June 30, promoters of air-conditioning generator manufacturer TD Power Systems sold 37.7 million shares for ₹835 crore. Shares of TD Power rallied 8% in the last three months and 20% in the last one year.

On June 20, promoter Abrdn sold about 21.8 million shares or 10.2% stake in HDFC AMC through a block deal to raise ₹4,079 crore. Earlier in May, Abrdn offloaded about 35.7 million shares or 1.66% stake in HDFC Life for ₹2,069 crore. HDFC AMC and HDFC Life shares rallied 30% in the last three months.

Promoters of defence company MTAR Technologies offloaded 2.3 million shares via open market transactions between June 1 and 29 for ₹434 crore.Hulst BV, Coforge’s promoter, sold a 3.52% stake in the IT company for ₹887 crore through an open market transaction in May.

Investors keenly track what promoters are doing with their shares as it offers clues about what they think about the company’s future, according to experts. “Strength of the buyers, like strategic and long-term institutional investors, and moderate valuation of the deals are healthy signs of enduring legroom for future growth,” said Vinod Nair, head of research at Geojit Financial Services. “However, in the smaller companies, it is unfavorable for current investors because promoter stake sales increase when the market and business outlook tend toward a cyclical high. It will be a big issue if the promoters have lost confidence in the business or are experiencing financial difficulties.” Late May, promoters of the chemical manufacturing company Clean Science and Technology sold 3.59% for ₹525 through a block deal.

In many smaller companies, the current valuation is beyond the promoter’s imagination, so naturally, they encash the bull rally. Still, the sale of stakes by promoters doesn’t necessarily send negative signals in all cases, said analysts.

“While it would be too early to call the selling of shares in the current upcycle by promoters as a red flag for the business, we do feel that shares prices have run ahead of their justified valuations,” said Manish Chowdhury, head of research, StoxBox.

“In some cases, promoters might be diluting their stake due to regulatory requirement, or strategic equity dilution for providing further tailwinds to the business, or taxation perspective.”

Companies such as Craftsman Automation, Gravita India, BLS International Services, Sterling and Wilson, Rolex Rings, Bikaji Foods International, and Landmark Cars, among others, have seen promoters offloading stakes in the past three months. Ravi Modi Family Trust, promoter of Vedant Fashions, sold a 7% stake in the company through an offer to raise 2,912 crore. However, this sale was to meet Sebi’s minimum public share holding norms.