Domestic mutual funds trim exposure to promoters’ pledged shares

Domestic mutual funds reduced their exposure to shares pledged by promoters during the January-March quarter.

As a result, the share of these funds declined to a four-quarter low of 34.78% in March 2019. According to data analysed from Prime Database, the share of these mutual funds had narrowed further from 38.22% in December 2018 and 36.09% in September 2018.

The value of pledged shares also declined to `78,205 crore during the March quarter from `89,341 crore a quarter ago, showed the data.

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Maximum amount of the promoter shares were pledged to different arms of the Kotak Group. Other shares were pledged to Citigroup, Yes Bank, HDFC Group and Credit Suisse.

According to Pranav Haldea, managing director at Prime Database Group, high pledge levels are typically not considered a good sign by investors as a downturn in the market price can lead to invocation and change in management. However, NBFCs and other institutions recorded an increase in share pledging rate from 38.61% to 44.83% (NBFCs and others). Across all companies listed on NSE the percentage of promoter holding pledged went down from 12.85% as of the December 2018 quarter to 10.41% in the March 2019 quarter. “This has further decreased to 10.37% as of April 2019,” added Pranav Haldea.

Over the last three quarters, total value of pledged shares has been reducing. Total promoters’ share pledging declined by 3.86% from the last quarter with the value of pledged shares going down to `2.25 lakh crore as of March 2019 compared to 2.34 lakh crore as of December 2018.

“Investors and domestic mutual fund houses are looking negatively at companies with high share pledge levels,” added Haldea.

There were as many as 28 companies in which 100% of the promoters’ shares was under pledge as of March 2019 quarter. Additionally, there were 87 companies in which more than 90% of the promoter’s shareholding was pledged and 204 companies in which more than 50% of the promoter’s shareholding was pledged. There were 12 companies in which pledged shares were brought down to zero in March 2019 quarter.