An analysis based on insider trading, pledging of shares by promoters and foreign investors and promoter holdings by Ambit Capital indicates ‘worrying signals’.

According to Ambit, insider activity during the January-March quarter suggests that not many company insiders are optimistic about the near-term prospects of their companies.

According to the study, the average outperformance of stocks seeing insider buying (over the next three months) was about 4.6 per cent (18.3 per cent on an annualised basis) for the previous 10 quarters. In contrast, the performance of stocks seeing insider selling has broadly been in line with the broader markets.

Companies such as GMR Infrastructure, JSW Steel, Bajaj Holdings, CESC, L&T Finance Holdings and Bharti Airtel saw buying by company insiders while Eicher Motors, JustDial and Aurobindo Pharma witnessed selling.

Pledge monitor “Also, the average pledged shareholding for the BSE 200 universe has been steadily inching higher since the September quarter, pointing to rising stress in the financial position of Indian promoters,” it added.

A detailed analysis of promoter holdings pledged can provide interesting cues to the financial position of promoters and whether they are changing for the better or for the worse (which may eventually impact stock prices and businesses).

FII selling During the quarter, pledging of shares increased significantly for GMR Infrastructure, Reliance Infrastructure and Max India. On the other hand, the promoters of Adani Power, Sun TV and Motherson Sumi have successfully reduced their pledged holdings. Further, Unitech is the only firm in which pledged shares were invoked by lenders.

Another worrying data, according to Ambit, relates to foreign institutional investors. “After having remained quite optimistic on India over the past few years, FIIs seem to have moderated their optimism in the last two quarters,” it added.

FII holdings for the top-200 companies have inched lower in the last two quarters (until March 2015, even before the recent FII outflows). This can be partly explained by the uncertain economic revival along with lofty valuations, it added.

Similarly, FIIs have significantly raised their stakes in HDIL, Indiabulls Real Estate and Bharti Infra and reduced their stakes the most in Indiabulls Housing, L&T Finance Holdings and J&K Bank, the study revealed.

Infosys is amongst the top firms that have seen the maximum decline in FII holding during the March quarter. Whilst FII holdings remained more than 40 per cent throughout 2014, this has slid to less than 38 per cent during the March 2015 quarter.

Century Textiles, Allahabad Bank and Syndicate Bank are the top-three firms where promoter holdings increased the most in the March quarter, whilst promoter holdings declined the most in Coal India, Hero MotoCorp and UCO Bank, said Ambit.

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