The Hindu Business Line : Promoters of mid-cap cos shed stake as stock prices rule high

WITH the stock price of most mid-cap and small companies trading at yearly highs and, in some cases, an all-time high, promoters of several companies have sold part of their stakes in the open market in the last two months.

But market players are not concerned over this development, as they believe this is being done to increase liquidity in the stock and attract more institutional investors.

Under a normal course, when the insiders (the promoters) are reducing their stake, it is not taken positively by the market players.

Some of the companies in which promoters have reduced their stake in the last couple of months include Mirza Tanners, Satnam Overseas, Ind-Swift Laboratories, Aarti Drugs, Surana Tele, Shanthi Gears, Jubilant Organosys, FDC and Rana Sugars. In most of these companies, FIIs and domestic institutional investors have mainly bought the shares.

For instance, Arnada Investments, a subsidiary of Temasek Holdings, bought over 6 per cent in Satnam Overseas.

Ward Ferry Management Ltd, an account of WF Asian Smaller Companies, bought shares in Ind-Swift Laboratories. Another FII that purchased the company's shares is Deutsche Intertrust Corporation.

UBS Securities bought shares of Jubiliant Organosys on Tuesday.

Mr Amit Rathi, Managing Director Anand Rathi Securities, said, "Most of these mid-cap companies have low liquidity in the market, but there is institutional interest in them. The only option for them (institutional investors) is to buy shares from the promoters."

In the recently concluded FICCI's global conference of securities market, several international fund managers expressed concern over low liquidity in mid-cap stock and, due to this, institutional interest in them was low. These fund managers suggested that family-owned companies should divest their stake.

Mr Sandeep Shenoy, a strategist at stock broking firm Pioneer Intermediaries, said the market capitalisation of several mid-cap companies had increased in the last one year and this had led to FII and institutional interest in them. Since promoters' holding is high in most of them, dilution of their stake (3-5 per cent) does not affect the promoters. "From a taxation point of view also, promoters selling their stake is beneficial as they do not have to pay long-term capital gains tax on them," Mr Shenoy said.

Mr Rathi said with institutional interest, the market value of the companies shares also increases.

The stock prices have increased in several companies in which the promoters had diluted their stake recently.

For instance, Mirza Tanners' stock price increased from Rs 130 on October 21 to Wednesday's closing price of Rs 176 on the BSE.

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