28 DALAL STREET INVESTMENT JOURNAL I JULY 22 - AUG 4, 2019 DSIJ.in^
Cover Story
I do think the development is negative; however, I am not sure
if I want to get rid of all these stocks as these stocks have been
contributing very well to my portfolio so far. I will wait and
watch”.However, contrary to the majority view, there are few investors
who sense an opportunity for buying mis-priced stocks.
According to long term investors, this development will
present an excellent opportunity to buy fundamentally sound
stocks at a discount--which were hard to find till now. Some of
the stocks in the higher promoter holdings category with low
free float in fact trade with a premium. One can expect the
premium to reduce over time. The supply pressure may push
the stock prices lower by 10 per cent or even more if we pay
attention to the various offers for sale that took place recently.
Such a drop in prices could present a buying opportunity in
quality stocks.OFS, a shorter and less complex way to sell stake
rather than through initial and follow-on public
offers, was introduced by the Securities and
Exchange Board of India (SEBI) in February- OFS helps promoters of listed companies
dilute their stakes through an exchange
platform (BSE & NSE). The promoters are the
sellers. The bidders can include market
participants such as individuals, companies,
qualified institutional buyers and
foreign institutional
investors.
T
he Union budget 2019-20 may not have
enthused equity investors much, but it has
managed to make investors think about
holding on those shares where the
promoter holdings is more than 65 per
cent. Indeed, one of the highlights of the
Union budget was the announcement
made by the Finance Minister Nirmala
Sitharaman on the maximum shareholding by promoters
wherein it was stated that no listed public limited company
shall have promoters holding more than 65 per cent of the
total shareholding. This move is believed to be in the
long-term interest of the investors and the market participants
alike as it can improve the liquidity in the markets as well as
enhance corporate governance standards. Says Mustafa
Nadeem, CEO, Epic Research " This is a historic move of the
government and for the investors as well. This will bring a
change where we would see a large chunk of the wealth of a
company being passed on to an ordinary investor. They will
have a stronger voice from here on. So, the move by the
government is a great move, though it may have some other
ripple effects."
When it comes to the impact on the stock prices, the opinion is
divided on the announcement. While there is a broad
consensus in the market that such a move will have a negative
impact on all those shares where the promoter holding is more
than 65 per cent, there is always a probability of the stock prices
overshooting on the downside, thereby creating opportunities
for the long term investors. It is not always easy to identify such
lucrative opportunities, but then situations like these help long
term investors create wealth.
As of now, the dilemma faced by a majority of investors is
whether to hold stocks where promoter holdings exceed 65 per
cent or to get rid of them – only because of the budget
announcement.
Why the dilemma?
There is an age-old perception amongst investors that higher
promoter holding is a good sign for investors as it reflects the
commitment of the promoter. Also, it is considered negative
when a promoter is consistently selling his or her stakes in the
company. However, this time around, investors are faced a a
dilemma created by the unique situation, where promoters of
several companies are forced to bring down their stakes to less
than 65 per cent. How does one decide what to do with the
current holdings (stocks) where the promoter holding is
more than 65 per cent? For sure, this decision if implemented
will impact several portfolios and may lead to churning
of the portfolios. Says Bharat Pawar, a long-term investor,
“I have a focused portfolio and almost 10 stocks out of
my 30 stocks have promoter holdings greater than 65 per cent.
PSU stocks
The announcement in the budget to increase the liquidity
in the markets by asking SEBI to bring down the maximum
promoter shareholdings from 75 per cent to 65 per cent has
opened a treasure trove for PSU investors. As the
recapitalisation takes place, the government’s stake in the PSU
banks is increasing and few banks are already reflecting
government’s stake at more than 90 per cent.It is going to be a challenge for these banks to bring down the
promoters holding from 90 per cent plus to 65 per cent. Even
though it is obvious that the stake sale will not happen in a
hurry and the sensible approach expected from SEBI is to