In the month of August, share pledging by promoters among stocks listed on the National Stock Exchange (NSE) has surged to reach a three-year high. On August 31, the share pledging by promoters stood at 1.86% of the total market capitalization of NSE, data collected by Prime Database shows. In value terms, the pledged shares amount to Rs 2.77 lakh crore, adding almost Rs 1 lakh crore from the previous month. The pledging of shares by promoters in higher quantity is considered to be a red flag by investors. Higher pledges by promoters could result in change in ownership, in case stocks prices plummet.
Data showed that shares were pledged in 463 of the 1656 main-board companies listed on NSE, as compared to 461 companies at the end of July 2020. Prime Database highlighted that as many as 29 companies on the NSE have their entire promoter stake pledged. Among these 29, some of the names that are better known include, Dewan Housing Finance Ltd., Hindustan Zinc, IL&FS Investment Managers, and Bajaj Hindusthan Sugar. Promoters generally pledge shares to raise loans from financial institutions either for operations or acquisitions.
192 firms have over 50% promoter shares pledged
Further, there are 81 companies listed on the NSE who have over 90% of their promoter stake pledged and 192 companies in which over 50% of the promoter’s shareholding was pledged. Apart from Hindustan Zinc Ltd, other Nifty-200 companies with promoter share pledging include Max Financial Services and Anil Agarwal’s Vedanta Ltd. GMR Infrastructure Ltd has 73.61% of its promoter shares pledged, while Future Retail has 73.47% of its promoter stake pledged. Emami Ltd, where 90% of the promoter shares were pledged a few months back has now brought the same to 54%. Hindustan Zinc and Vedanta Ltd did not have any promoter pledges in the month of July. Hindustan Zinc is a subsidiary of Vedanta Ltd.
Value of shares pledged
In value terms, over 160 companies have more than 25% of share capital pledged as a part of promoter pledging. The value of pledged promoter shares of Hindustan Zinc stood at over Rs 62,000 crore at August end. Value of Vedanta pledged shares was close to Rs 24,000 crore. Ruchi Soya’s 99.90% shares pledge account for Rs 18,404 crore, which is almost 97% of its market cap. Interestingly, IT major Tata Consultancy Services (TCS) has merely 2.9% of its promoter’s shares pledged, but the value of these is close to Rs 18,000 crore.
“Companies in NIFTY-200 which saw creation of fresh or additional pledges were Adani Ports & Special Economic Zone, Ajanta Pharma, Apollo Hospitals Enterprise, GMR Infrastructure, Hindustan Zinc, Jindal Steel & Power, JSW Energy, JSW Steel, Mahindra & Mahindra, Max Financial Services and Vedanta,” Prime Database said. During the month of August, Future Retail’s share pledges worth Rs 327 crore were invoked by Ambit Finvest Pvt.Ltd. and RBL Bank Ltd. Almost 19% of the total shares pledged by promoters are in favour of JM Financial Products, followed by Credit Suisse, and Bajaj Finance Ltd.
However, companies do reduce these pledges with time as in the case of 51 companies that successfully trimmed their pledges during August. Tirupati Forge and Jyothy Labs were the only two firms to erase all promoter share pledges. Others that trimmed promoter share pledges were Emami, JSW Steel Ltd, Max Financial Services, Adani Transmission, Tata Power, Sun Pharma, Motherson Sumi, among others.