With RBI holding rates due to inflation concerns, promoters have been turning to share pledging to raise money. Data compiled for 2,400 companies shows that promoters of 630 companies pledged shares in Q3FY18. Of these, promoters of 71 companies pledged more than 95 per cent of their holdings. Though an effective source of finance, promoter pledging can lead to volatility in stock pricing when markets are down. Markets seem to be favouring companies whose promoters have reduced their pledging.
Ninety companies whose promoter pledging (as a percentage of their total holdings) halved between Q3FY17 and Q3FY18 delivered an average return of 63.5 per cent (between Dec 30, 2016 and Jan 30, 2018). Average returns were more significant in companies whose promoters eliminated pledging in Q3FY18 compared to Q3FY17. The group includes 49 companies that delivered 72.2 per cent average returns. On the other hand, there are 23 companies where promoter pledging has increased by more than two times between Q3FY17 and Q3FY18.
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