Promoters of midcap companies are making hay while the sun shines. A substantial rise in share prices in the past few months has prompted many of them to cash in on the market rally. Many entities have also seen private equity investors and venture capital funds heading for the exit route.
According to Capitaline, out of 1,182 companies for which data is available, 138 saw promoters reducing their holdings during the April-June quarter.
“An upward movement in share price was partially a contributing factor for the stake sale by promoters. We also saw large selling by PE and VC funds, across the board. While their stake sale was driven partly by valuation, it was largely because of the time limit of the fund, with the tenure coming to an end,” said Nilesh Shah, MD and CEO of Kotak Mahindra MF.
He said there was a need for caution with respect to micro and minicaps, given that prices have seen a run-up ahead of fundamentals, “owing to limited float and greed”.
Of the 27 midcap firms in which promoters have reduced their holdings, only two saw a fall in their share prices during the time span.
One of these was of Easy Trip Planners, which saw a reduction of 3.6% — among the top five in the list. However, its share price dropped 7% from Rs 43.53 to Rs 40.56 between March 31 and June 30.
The firm had seen close to 41 million shares (2.35%) of its equity exchange hands in about 40 large deals a fortnight back, for a deal size of roughly Rs 164 crore. Co-founder Prashant Pitti had then told a TV channel that the stake sale was by promoters of the company with no further offloading planned.
Besides, there were five entities that saw a surge of more than 40% in their share prices, with that of Titagarh Rail jumping as much as 92%. The company saw a near-3% reduction in promoter holding.
However, none of these saw a reduction of shareholding to below 75% from above 75%, indicating that compliance with Sebi’s minimum public shareholding norms was not the objective, such as in the case of smallcap firm Orchid Pharma. At 18%, Orchid saw the largest reduction in promoter holding across the spectrum — from 90% to 72% — to comply with the Sebi regulations.
“Promoters would no doubt want to capitalise on a bullish market. At the same time, they also look to diversify and invest in other asset classes as a safety net,” said Deepak Jasani, head of retail research at HDFC Securities. He added that some also seek to cash in, in order to raise funds investing in other businesses or real estate.
Among largecaps, only Adani Enterprises (stake sale to GQG Partners) and Aditya Birla Capital (exit of IGH Industries) saw substantial offloading by promoter groups. Jasani said those with pledged shares use the proceeds from the share sale to repay debt.