The Hindu Business Line : Small IT cos’ promoters hike stake in weak market

Bangalore Nov. 30 In a bid to instil investor confidence in their companies, the promoter directors of small and medium sized IT firms are raising their equity stakes even as the stocks trade at yearly lows in a weak market.

Sensing an opportunity to buy, promoters of companies such as Subex Ltd, Mastek Ltd, Geometric Software and MindTree Ltd have consolidated their holdings by purchasing shares in various tranches from the open market in the past two months.

Such a trend was not witnessed among the top five companies – TCS, Infosys, Wipro, Satyam and HCL Tech.

The US economic recession, triggered by the sub-prime crisis, has impacted the global indices and had dragged the benchmark BSE Sensex to a three-year low recently. The CNX IT index has dropped by more than 55 per cent since the beginning of the year, while valuation of IT stocks has hit a low.

Chance for value buying

The Chairman and Managing Director of Subex Ltd, Mr Subash Menon, who owned a 5.06 per cent stake under his name in Subex at the end of September quarter, increased it to 6.51 per cent as of November 24.

His cumulative stake including that of Subex Holdings, a company promoted by him, stood at over 11 per cent post the recent open market purchase.

“When prices are unnaturally low, it is an opportunity to acquire shares. The future of the company is absolutely certain and good profits are expected. Essentially, it is a signal of confidence in the company,” said Mr Subash Menon.

Subex that posted losses in the past two quarters due to the integration issues is expected to return to the black in the near-term.

Mastek’s buys

Promoter directors of Mastek – Mr Ketan Mehta, Mr Sudhakar Ram and Mr Ashank Desai increased their stakes marginally in the company. Mr Ketan Mehta increased his stake to 9.34 per cent (9.27 per cent as of September-end), while Mr Sudhakar Ram’s stake went up to 10.35 per cent (10.28 per cent). Mr Ashank Desai increased his stake to 11.82 per cent (11.76 per cent).

“The stocks are undervalued, which gives the promoters, who are also investors, the opportunity to accumulate. It can also be a signal to the public that the company’s future is secured,” said Mr Harish H.V., partner at Grant Thornton.

Others

Indian IT firms are facing uncertain times as clients in the US hold back their spending on deploying new technology and applications. The small and medium IT firms trailed their larger peers such as Infosys and Wipro in revenue growth for the September quarter as business uncertainty impacted their operations.

Other promoters who increased their holdings marginally include Mr Vineet Nayyar, Managing Director of Tech Mahindra Ltd, Mr Ashok Soota, Chairman of MindTree Ltd, Mr Krishna Kumar Natarajan, CEO of MindTree, and Godrej Investments Pvt Ltd in Geometric Software Ltd.