In a surprising twist to conventional market wisdom, the past year has witnessed a shift in the way investors perceive promoter stake sales. Traditionally considered a red flag, promoter selling is no longer an automatic indicator of a stock’s impending decline. A notable example is the performance of stocks such as HDFC Asset Management Company, TD Power System, and Jindal Stainless, all of which have doubled in the last year despite promoters offloading substantial stakes ranging from 9 to 24 percent.
THESE TEN STOCKS HAVE DOUBLED DESPITE STAKE SALE:
| Company Name | Returns 1 Yr (%) | Reduction in Promoter Stake (%) (Dec ’22 to Dec ’23) |
|---|---|---|
| TD Power Systems Ltd. | 113.86 | -24.2 |
| Orchid Pharma Ltd. | 173.36 | -20.2 |
| Inox Wind Ltd. | 465.63 | -19.3 |
| K&R Rail Engineering Ltd. | 306.72 | -19.1 |
| Kirloskar Oil Engines Ltd. | 176.65 | -18.2 |
| NIBE Ltd. | 193.69 | -13 |
| Jindal Stainless Ltd. | 121.05 | -11.4 |
| HDFC Asset Management Company Ltd. | 100.27 | -10.2 |
| Gokaldas Exports Ltd. | 127.31 | -9.9 |
| Urja Global Ltd. | 199.1 | -9.9 |
Investment experts suggest that while a slight reduction in promoter stake (around 4-5 percent) might not raise concerns, consistent and significant reductions over several years should be a cause for investor vigilance. However, the focus should remain on analyzing financials and valuations rather than mimicking the promoter’s actions.
Purvesh Shelatkar, Head of Institutional Broking at Monarch Networth Capital, emphasizes the importance of studying underlying cash flows and company fundamentals. He notes that promoters might be capitalizing on favorable valuations in a bullish market and advises investors to seize opportunities based on industry tailwinds and expected earnings growth.
The traditional view of high promoter holding as positive and low holding as concerning may not hold true in all scenarios. Prashanth Tapse, Senior VP (Research) at Mehta Equities, suggests that recent sell-offs by Indian promoters could involve sales to strategic long-term investors or institutional investors, indicating a positive sign for long-term investors.
In specific instances such as TD Power Systems, HDFC AMC, and Jindal Stainless, despite significant promoter stake reductions, stocks have flourished, with FII stake witnessing substantial increases during the same period.
