Promoters sales can often be a positive for the company’s stock price, revealed data from Carnelian Asset Management.
The asset management company evaluated promoter sales in the last 10 years and found 70% of such firms delivered positive returns, while 15% of them generated more than 30% compounded annual growth rate.
Family promoters, governance, and growth
Family-owned business promoters, private equity promoters (majority and minority) and professional management (CEO and CFO) are insiders in a listed firm. Of these the family-owned promoters may sell for numerous reasons including separations or settlements. In Kirloskar Group, Shivalik Bimetal, and InterGlobe Aviation, such moves clarified governance. These transactions should be contextualized within a maturing capital market, the firm said in a report to its clients.
“Some promoters are not spending time on their own business but are spending time on other businesses. A natural extension. Capital remains in the system. It’s just that it’s getting allocated to other businesses. Here entrepreneurs are hungry,” said Swati Khemani, founder and CEO of Carnelian, in an interview with FE.
In family-owned businesses, insider transactions can serve a legitimate purpose to streamline ownership structures, succession, reducing uncertainty and fostering stability. Far from being negative, these events can be positive for the stock. Sometimes promoters require capital for new businesses, acquiring property, or philanthropic commitments. Metro Brands is an example.
Regulation, diversification
Regulatory requirements can also drive promoter selling. Sebi mandates listed companies reduce promoter shareholding to 75% within 18 months of listing. For companies not requiring fresh capital, promoters have little choice but to sell to comply, irrespective of their outlook on the business. Avenue Supermarts, JSW Infra, Hyundai Motors, NTPC Green are examples.
Diversification of risk where 80–100% of promoter wealth is tied to a single business is rational and often necessary. Regulatory constraints limit insiders’ selling windows, making family office liquidity a valid approach. On the other side frequent divestment by promoters and insiders without a clear rationale and frequent buying and selling, especially when coupled with financial volatility, suggests opportunistic behaviour.
Insiders sold $15.8bn (2020), $15.1bn (2021), $9.8bn (2022), and $20.1bn (2023). Capital re-circulation from funds raised through divestments often get reinvested into markets via family offices or alternative investments, the report said.