Promoters investing money in own companies

Many of the promoters have been buying their own stocks, investing money in own companies since most of the stocks are quoting very reasonablly. We believe investing in such stocks could prove best investments in bear market for long term.

The year 2008 may have been a forgettable one for equity investors, but it offered a golden opportunity to many promoters to raise their holdings at dirt cheap prices. Promoters have been on a stake-raising spree for most part of the year, primarily due to attractive valuations, and in some cases, as a desperate measure to stem the slide in share prices.

The recent Sebi move hiking promoter holding limit to 75% from 55% under creeping acquisition guidelines has widened the scope for raising stake to an extent that promoters feel confident of warding off takeover attempts, analysts said.

Data filed with stock exchanges show that promoters of a host of companies, including GMR Infrastructure, Gitanjali Gems, Kesoram Industries, Larsen & Toubro, Mastek, NIIT, Patel Engineering and Praj Industries, have been accumulating shares from the open market in large quantities. Analysts feel that the biggest advantage of buying in the current market is the lower cost of acquisition. The stocks of these companies have fallen between 60-85% from their respective peaks.

GMR Infrastructure is one such example where the key promoter, GMR Holdings, acquired 42.3 lakh shares between December 15-18, subsequent to which the latter’s stake rose to 74%.

Similarly, Mehul Choksi has bought about 33 lakh shares of Gitanjali Gems from the market since the beginning of October. The shares account for about 4% of the company’s equity capital. The promoters of NIIT acquired 17 lakh shares while the Chaudhari family of Praj Industries purchased 21 lakh shares. L&T CMD AM Naik has bought about two lakh shares of the company.

However, Mr Naik, a professional manager, is not regarded as a promoter of the company. Deccan Chronicle promoters — T Venkattram Reddy, T Vinayak Ravi Reddy and PK Iyer — acquired close to 52 lakh shares from the market.

Analysts feel that this is the right time for promoters to go for creeping acquisitions and reaffirm confidence in their companies. “It makes sense for promoters to buy shares from the market, as this would give comfort to investors that liquidity position of promoters is strong,” said Indiabulls Securities CEO Divyesh Shah.

Interestingly, it is observed that promoters of many real estate companies have bought shares from the market in the past few months. In some cases, the percentage, or number of shares, bought may not be enough to provide any substantial support to the stock price. But such transactions could help build confidence among investors, say brokers.

Ansal Housing, Anant Raj, DLF, Kamanwala Housing, Kolte Patil, Orbit Corporation and Prime Property are a few real estate and construction companies witnessing creeping acquisitions by their respective promoters.