Bijoy Sankar Saikia, Financial Chronicle 27/5/2012
Remember god in good times and equities in bad times,” star fund manager Prashant Jain wrote in a note over this weekend about the opportunities that the stock market presents investors at this moment. “If this is do-ne, then chances are one will avoid both — bad times in life and poor returns on investments,” said the chief investment officer of HDFC Mutual Fund.
While it may be easier to decide on investing in equities, picking up the right stock is usually a tough choice. More so, in situations like now, when the economy is on the downward slope.
Chances are that specific companies could be highly indebted even in sectors that look healthier. For that matter, chances are also that either one vertical or another, in an otherwise promising company, could be under stress fro-m multiple headwinds hitting the eco-nomy. Even in sectors where business fundamentals look good, stocks may have risen far beyond valuation levels than what the law of averages justify.
In any phase, whether good or bad, promoters can gauge the health of their businesses best. They understand precisely where their ventures are headed, and how much growth they may be able to achieve over a particular period. Going by that logic, a promoter buying into his own company at a particular point of time, without any particular provocation — say, an open offer or strategic restructuring of stakeholding — can be read as a bullish signal for the business.
Long-term trends show companies wh-ere promoters and related entities have bought shares on sharp declines have done well when the market has come under the control of the bulls. While buying by promoters cannot be the only indication to buy a stock, it is surely worthwhile for investors to keep an eye on the stocks where promoters are buying and dividend yields have reached attractive levels.
A quick look at changes in promoter shareholdings of BSE500 companies in the March quarter over December shows while about 70 companies saw promoters shedding stakes in the fou-rth quarter when the market looked up after prolonged slump through 2011, promoter and promoter firms raised stakes in some 72 companies from as little as 0.1 per cent to 9 per cent.
Some of these companies where promoters raised stake include Bajaj Holdings, Punj Lloyd, Jyothy Labs, Ansal Properties, JSW Steel, Jindal Poly Film, Everest Kanto, Shiv-Vani OilGas, Jagran Prakashan, Triveni Engineering, Raymond, EIH, Zylog Systems, Madras Cement, Jindal Steel, United Phosphorous, Bajaj Electrical, Praj Industries, OnMobile Global, Radico Khaitan, Sujana Towers, Usha Martin, Kalpataru Power, SRF, Apollo Tyres, SREI Infrastructure Finance, HEG, Kesoram Industries, Tata Steel, Rolta India, Crisil, Rain Commodities, Gitanjali Gems, Ruchi Soya, Core Education, KEC International, Amtek Auto, Nava Bharat Ventures, Sintex, Religare Enterprises, Gammon India, Shriram Transport, Titagarh Wagons, Akzo Nobel, Orient Paper, Bajaj Finance, IDBI Bank and Everonn Education.
Data indicate that promoters raised stake in 26 such companies even in the March quarter of 2009, when the stock market plunged in the aftermath of the Lehman Brothers’ collapse of September 2008.
Promoters of diversified company Nava Bharat Ventures seem to have tapped the opportunity to raise stake in the company at least on two such occasions, with promoter shareholding going up 1.04 per cent in the March quarter of 2009, and another 1.48 per cent during January-March this year. It’s a similar story with Akzo Nobel, a prospective delisting candidate, KEC International, Orient Paper, Jyothy Labs, FDC, Ansal Properties, Jindal Poly Film, Everest Kanto, Shiv-Vani OilGas, Jagran Prakashan, Raymond, JBF Industries, Kirloskar Brothers, Zylog Systems, Praj Industries, Nitin Fire, SRF, Srei Infrastructure Finance, HEG, JB Chemicals & Pharma, Kesoram Industries, Rolta India, Ruchi Soya Industries and Welspun Corp.
“When an insider is buying shares, it’s a positive signal. It could be due to personal reasons, but it also means that things cannot get worse,” says Pankaj Pandey, head of research at ICICI Securities.
These changes can be seen across sectors, from investor favourites FMCG, pharma and consumer utilities to depressed ones like capital goods and even others such as finance, cement, steel, real estate, packaging, media, textiles and IT-software. This goes well with the readings of many analysts that there are pockets of opportunities in every sector.
“India appears significantly oversold on a comprehensive set of relative valuation metrics based on book value, national income and cyclically adjusted earnings. In fact, India has appeared cheaper than it is at present only once or twice in the past 10 years,” says Saurabh Mukherjea of Ambit Capital.
“Unless you believe that there is another Lehman on the way, it makes sense to take a bolder approach to buying high-quality, sensibly-valued companies in India,” he said.
Some analysts suggest caution on such triggers. There are times when a promoter may simply buy more shares in a bid to boost the stock price, which is the case with most share buybacks. Similarly when companies go for rights issues, often promoters buy out the unsubscribed portions of it, thereby raising their stakeholdings.
Fresh fund infusion or entry of new investors may also raise shareholding on the promoter account, and such developments may leave investors confused. One classic example is Everonn Education, which saw promoter holding go up as much as 9 per cent during the March quarter, but it happened mainly due to investment by the new foreign management.
“Today Indian markets are in a state of panic and investors jump on simple philosophies of buybacks or low promo-ter holdings that lead to takeover targets as a philosophy of investment. Th-is is very myopic as a strategy and one should rather look to buy good busine-sses that will survive the carnage,” says R Murali Krishnan, head of institutional equity at Karvy Stock Broking.
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