Skip to main content

Promoter activity and how it affects your investment

By tracking promoters’ move in the open market, you can get a feel of the direction of a stock price

THE January bloodbath on Dalal Street this year left stocks of many heavyweight as well as emerging companies quoting at cheap prices. What followed in the next five months was that many promoters used this slump to acquire their company’s shares from the open market. This buying from the secondary market by promoters to enhance their holdings is also known as "creeping acquisitions". You may, however, ask how it makes a difference to your portfolio. According to analysts, by tracking promoters’ move in the open market, you give yourself a chance to ascertain the direction of a stock price you are holding. Here’s an insight into how you can follow promoters’ buying and selling activity in capital markets to your advantage.

FIRST THINGS FIRST

Is it legal for promoters to shore up their stake by buying from the open market? As per Securities and Exchange Board of India (SEBI), promoters are allowed to purchase up to 5% stake in their company in a single financial year through creeping acquisition route, subject to the condition that they don’t cross the ceiling of 55%. The next question which may come to your mind is — but how can you find out promoters’ trading activity in the open market on a daily basis.

For the uninitiated, there are two ways you can do the same.

First, you can visit Sebi’s website and read insider trading disclosures page under Sebi (Prohibition of Insider Trading) Regulations, 1992.

Second, you can regularly keep a tab on the ‘Insider Trading’ column, generally published in financial newspapers with stock market prices. Investors who are not efficient with the online medium find the latter approach more convenient to deal with.

FIGURE OUT MOTIVE

Analysts believe that promoters’ trading pattern in the open market signals their intent towards their future plans. Basically, when promoters sell their share in the secondary market, it is seen as a bearish indication, unless this may not be the case, when they are selling shares to a large or strategic investor or they are doing the same to subscribe to warrants or bonds. Further, if they sell the shares for their own personal diversification, it cannot be viewed as a negative indication.
If the selling activity, however, has a correlation with the projected performance of the company, you should better watch out and take your call whether you want to remain invested in the stock. During the last two years, there have been many instances when promoters’ move to sell their stocks in the secondary market has resulted in their company’s stock prices collapsing on Dalal Street.

However, promoters generally buy their shares from the secondary market via a buyback, which is mandated by Sebi. The buyback can be done either through a tender offer or a market buyback. The company then has to fix the quantity of shares that it wants to buy from the secondary market and inform the market regulator. Under a tender buyback, the company will send you a tender form, which you will have to fill up and send it across to the company. The other option involves companies buying back shares from the open market over an extended period of time.

In India, the multinational companies, in most cases, buy through a tender route. The attempt largely remains to return excess cash to the shareholders or in a few cases, to break the flow of the falling stock prices or arrest the fall in stock prices. You should try to figure out the intention of promoters behind any move in the open market. For instance, if the promoters are buying shares in large quantities, it normally augurs well for the stock prices, and the positive impact is visible over a period of six to 18 months. The buying more often than not indicates that the promoters feel that the stock price of their companies is lower than the true value.

Day traders, generally, get more excited when they see any activity from promoters in the secondary market. For a long-term investor, if a promoter is on a fast creeping acquisition spree, raising his stake from an already comfortable level, it can be seen as a positive indication. You should, however, keep other factors in mind while taking the final call. The fast-paced approach, according to analysts, in a way reflects management’s confidence about the future prospects of a company.

In the last few months, companies which have seen mopping up of shares by their promoters from the secondary market include ACC, GE Shipping, Pantaloon Retail, Reliance Infrastructure, Great Offshore, and Reliance Energy. You should, however, try to ignore any small buying or selling promoters are doing, unless they form a pattern.

Popular posts from this blog

Understanding Your Cibil Credit Information Report

   WE ARE all familiar with the anxiety and uncertainty that we feel when applying for a loan. After all, it's the lender who decides whether we can own our dream home, our first car, or whether our children can pursue higher education. In a nutshell, a better life depends on the lender's decisions.    While other factors do play a part in the lender's decision, the Cibil Credit Information Report ( CIR ) plays a crucial role in a lender's decision to approve a loan application.    Previously, lenders would treat all loan seekers equally. Each applicant, if approved by the lender's internal credit policy, would be charged at the same interest rate for a particular loan size and purpose. The lenders would charge a higher interest rate to all the borrowers, in order to compensate for the possible default of a small portion of the loan disbursed. In other words, it's like a professor (the lender) punishing an entire class (borrowers) for the mischief played b...

How much to invest in gold ?

Invest In Tax Saving Mutual Funds Online Download Tax Saving Mutual Fund Application Forms Buy Gold Mutual Funds Call 0 94 8300 8300 (India) Let your motivation dictate the share of the yellow metal in your portfolio Enough has been said and written about gold as an investment option. The latest argument is that the craze for gold among Indian households is endangering our country's balance of payments. The policymakers are busy trying to find ways of discouraging investment in gold, but if households keep the common good in mind, they would be paying the market price for gas cylinders as they do for, say, their mobile phone bills. After all, private decisions are driven by private motives. So, how should a household look at gold from its own perspective? Gold is primarily acquired for its merit as a store of value. Even if the worst crisis hits a family, the gold that it holds could be put to use anywhere in th...

Save Tax With Mutual Funds

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300       Mutual funds are ideal as long term investment avenues for retail investors. To encourage investments in this avenue, the Government of India offers investors a spate of tax benefits thus ensuring maximum benefit from mutual funds held beyond a year. Sample some of the key benefits and refer to the table for a detailed list of tax rates for different types of schemes ·        Avail deductions under Sec 80C of the Income Tax Act by investing up to a maximum of Rs. 1 lakh in designated Equity Linked Savings Schemes (ELSS). Such investments have a compulsory lock in period of 3 years. ·        First time retail investors in equity with a gross total income of up to Rs. 12 lakh can invest up to Rs. 50,000 in specific MF schemes un...

Compared to Bank FDs, Debt Mutual Funds are more Tax-Efficient

It is a security vis-a-vis returns battle between bank fixed deposits and debt funds In the past few months, banks have been consistently increasing their rates of interest on different fixed deposits. And after the Reserve Bank of India's Annual Monetary Policy, even the saving deposit rates are up at 4 per cent. For a six-month fixed deposit, you can easily get a rate of anywhere between 6 and 7 per cent annually. However, experts feel if one is looking to invest for less than a year, debt funds could make a better choice. The reason: Liquid funds and ultra short-term funds are giving annualised returns of 8 per cent. Financial advisors suggest retail investors opt for mutual fund schemes as they are more flexible and give higher post-tax returns. Opt for fixed deposits only if you are comfortable being locked-in for the tenure as a premature exit can attract a penalty. If your main aim is to ensure liquidity, debt funds are preferable. Though a fixed deposit gives you a...

Reliance Health Total

  Reliance Life Insurance has launched Reliance Health Total, a non-linked, non-participating and non-variable health insurance plan . It provides a fixed benefit cover for hospitalisation, critical illnesses and surgeries. The customer can also make a claim for over-the-counter health-related expenses. This is a regular-pay, five-year plan that can be renewed till the age of 99. The plan comes with two options: customers can choose a higher medical reimbursement benefit or a higher sum insured. Best Tax Saver Mutual Funds or ELSS Mutual Funds for 2015 1. ICICI Prudential Tax Plan 2. Reliance Tax Saver (ELSS) Fund 3. HDFC TaxSaver 4. DSP BlackRock Tax Saver Fund 5. Religare Tax Plan 6. Franklin India TaxShield 7. Canara Robeco Equity Tax Saver 8. IDFC Tax Advantage (ELSS) Fund 9. Axis Tax Saver Fund 10. BNP Paribas Long Term Equity Fund You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds Invest in Tax Saver Mutual Funds Online - I...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now