Shares of Tulip Telecom have witnessed the largest fall. The scrip has plunged 78% during this period, with 92.56% of promoters shares pledged. Similarly, shares of Zenith Birla have fallen 66%. The promoters have 98.19% shares pledged with lenders.
An average fall in share prices of these 90 companies stood at 33% during the last one to three months, Capitaline and Bloomberg data show.
Analysts said pledging shares is the last available option for the promoters to raise funds and reflects the financial condition of the company. In addition, it reflects weakness in the companys corporate governance.
In most cases, analysts found a direct corelation between promoter share pledges and fall in the stock price. Providing information on promoter share pledging tells existing and potential investors what the promoters of the company are up to, said UR Bhat, managing director, Dalton Capital.
Market experts also said most of the companies belong to mid-cap and small-cap space, which observes high operator activity. An operator usually deals in a basket of stocks and dumps them collectively, which results in a sharp single-day correction in stocks of certain companies.
For instance, the recent fall in Core Education and Technologies led to a sharp fall in Eros International, Bhagwati Banquets and a host of other stocks. However, analysts say that there is nothing fundamentally wrong with these companies.
Interestingly, Core Education dropped over 60% on Monday, leading to a broad-based selling in other mid-cap and small-cap counters with high promoter share pledging.
Analysts also opined that disclosing the promoter share pledging brings additional transparency to a companys operations, corporate governance, and financials. Investors should do thorough analysis before buying shares of companies with a high promoter share pledging.
Ambareesh Baliga, an independent analyst, shared a similar point, saying making the information on share pledging public acts as waning to existing and potential investors. It helps bring more clarity while assigning the right valuations to the company, Baliga said.
A separate report by Morgan Stanley last week showed the value of promoter share pledging was at the highest level since the end of June 2011 quarter. In dollar terms, the value of pledged stocks stood at $28 billion, up 2.4% q-o-q in December 2012. In rupee terms, the total pledged value stood at R1.5 lakh crore, up 5% q-o-q, stated Sheela Rathi, Ridham Desai, and Utkarsh Khandelwal in their share
As part of Securities and Exchange Board of India (Sebi) regulations on shareholding norms, the capital market regulator made it mandatory for promoters/founders to disclose the amount of promoter shares pledged on a quarterly basis.