With the markets in a bear grip, stocks of companies where promoters have pledged shares have been under increased selling pressure.

Now brokerages and research firms are focussing the pledging phenomenon as volatility increases on the bourses.

According to a study by Crisil Research, promoters of 31 per cent of the 1,214 listed companies, with market capitalisation of Rs 100 crore or more, have pledged a portion of their shareholding. The total pledge works out to Rs 1.1 lakh crore, the research firm noted.

“In the backdrop of inadequate disclosure levels on share pledging, investment in such companies exposes an investor to severe price volatility in case a promoter is not able to meet payments or provide additional collaterals in a falling market,” said Crisil.

According to Mr Jagannadham Thunuguntla, Strategist & Head of Research, SMC Global Securities Ltd, the promoters of mid-cap and small-cap companies may find it extremely difficult in the scenario of share-price collapse and eventual trigger of margin calls. In such a scenario, there is a big risk of companies slipping out of the hands of promoters, in cases where they have pledged more than 50 per cent of their shareholding.

Since the value of these collaterals (pledged portion of promoter shareholding) is linked to the daily stock price, the fall in stock price below a threshold level leads to a margin call, requiring the promoters to pledge more to make up for the erosion in value. In case they do not, lenders cover the losses by actively selling the pledged shares in the market, leading to further price fall, Crisil said.

However, promoters of larger corporates may able to withstand margin pressures associated with pledged shares, said Mr Thunuguntla

Crisil Research's analysis also reveals that on a sector-wise basis, power generation, IT and ITeS, infrastructure and pharma/healthcare companies have seen higher levels of pledging.

According to Mr Tarun Bhatia, Director, Capital Markets, Crisil, “Other than SEBI's current guideline that requires companies to disclose percentage of promoter holdings pledged, there are no regulations which make it mandatory for promoters to disclose other crucial details purpose of fund-raising through pledging of shares, price at which the initial pledging is made and the conditions under which the margin call will be triggered. Crisil Research believes that the critical information on promoter share pledging other than the percentage holding should be made available on a quarterly basis to provide greater transparency and information to investors.”

> badri@thehindu.co.in

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