Promoters hike stakes in downtrend markets

If stock prices continue to slide, many more promoters are likely to use the opportunity to shore up their holdings, say market watchers. Already, stocks prices of many mid-cap companies have halved from their record high levels seen in January this year.

Tata Steel, through its wholly-owned subsidiary Kalimati Investment, acquired 3.9 lakh shares, or 2.5%, of the group company Tata Sponge Iron on March 14, 2008 when the shares were quoting at Rs 269.3. On the basis of Wednesday's closing of Rs 251 (up 1.9%), the shares were valued at nearly Rs 10 crore. Tata Sponge shares had hit a high of Rs 331 on January 1, 2008. Post-acquisition, the promoters’ stake in the company would have increased from 39.74% to 42%.

saurabh Mittal, one of the promoters of leading financial services company Indiabulls Financial Services, has also been buying his company’s shares in the open market. Consequently, his holding has gone up from 6.8% to 7.5%. Mr Mittal, together with Sameer Gehlaut and Rajiv Rattan as persons acting in concert, acquired 17,75,000 shares in two tranches on March 7 and 10, when the shares were trading at Rs 460.6 and Rs 469.8 respectively. The scrip rose 6.2% to close at Rs 440.7 on Wednesday, valuing the shares at Rs 78 crore.

Marico CMD Harsh Mariwala is another high-profile name who has also been bottom fishing in his company’s stock. According to disclosures filed with the BSE, he acquired 10.5 lakh shares of his company on March 18 when the share price had closed at Rs 62.7. The scrip closed 1.2%, up at Rs 66 on Wednesday.

“With share prices well off their record highs, it makes sense for promoters to buy additional shares at attractive valuation and to firm up their holdings through creeping acquisition route,” said a leading BSE broker. “Though such moves mostly indicate their confidence in companies concerned, what should matter to investors is the background of the company and its promoters,” he added.

Most of the above mentioned companies and promoters belong to prominent business groups and are fundamentally sound. Brokers, however, warn that investors should be wary of companies with an unimpressive background. In such cases, the promoters may be accumulating shares with a malafide intention of artificially jacking up the price and misleading investors, they add.