Mumbai: Company insiders, including top management and promoters, have sold shares in their firms worth about Rs14,950 crore in the past three months, cashing in on the steep rise in prices during the recent rally and signalling that the market may be fully valued.
“Insiders are cashing out some part of their shares. That shows the market is no longer undervalued,” says Jagannadham Thunuguntla, head of research at SMC Capital Ltd.
Since the Bombay Stock Exchange’s benchmark hit a low of 8,160 points on 9 March earlier this year, the 30-stock Sensex, India’s most widely tracked index, has risen 103.81% as foreign investors injected $15.42 billion (Rs72,165 crore) into the markets, enticed by the prospect of economic growth. While major Western economies are barely emerging from a deep recession, India’s economic output is expected to expand at least 6%, according to estimates by the Reserve Bank of India (RBI), making it the second fastest growing major economy.
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For the purpose of this story, insider sales include those by promoters, top management such as chief executive officers and chief financial officers, as well as sales of treasury stock. While insider trades are reported to the stock exchanges, only the number of shares is disclosed. Often, such sales take place over a period of time. Mint calculated the value by taking the average price of these shares for the past three months. The data was compiled by Edelweiss Securities Ltd and SMC Capital.
Insider transactions also include share purchases. On an overall basis, company insiders bought shares worth around Rs5,194 crore during the same period, or around one-third of the Rs14,950 crore of shares sold.
The largest transaction was the sale of treasury stock worth Rs3,188 crore by Reliance Industries Ltd, India’s most valuable company. Treasury stock comprises shares typically created by mergers and acquisitions and owned by company trustees. Jaiprakash Associates Ltd, another company that is part of the 50-stock Nifty index, also sold treasury shares worth at least Rs1,090 crore.
Other prominent transactions included share sales by N.R. Narayana Murthy, the co-founder and promoter of Infosys Technologies Ltd, and his wife Sudha Murty, both of whom together raised around Rs600 crore to start a venture capital fund.
Shishir Bajaj, chairman of India’s largest sugar maker Bajaj Hindusthan Ltd, sold shares worth Rs833 crore, as per Mint calculations. Eight members of the Biyani family, led by Kishore Biyani, the founder of Future Group that includes Pantaloon Retail (India) Ltd, sold Rs830 crore worth of stock during this period.
These share sales are not restricted to large companies alone. Mid- and small-cap shares, in many cases, had price increases that were sharper than the rise in the benchmark market indices.
At metal wire and bar maker Ramsarup Industries Ltd, for example, chairman and managing director Ashish Jhunjhunwala sold shares worth Rs8 crore last week. The firm’s stock price had increased roughly four-and-a-half times since the Sensex’s 9 March lows.
“Promoters are cashing out in listed companies through a wide variety of means indicating that the markets are fully valued,” said Saurabh Mukherjea, head of research at Noble Group Ltd.
This bull run has also seen companies raising money with alacrity to take advantage of the easy-money regime initiated by central banks worldwide to combat a credit crunch last year.
According to data from Prime Database, companies have so far this fiscal year raised around Rs28,234 crore through qualified institutional placements, which are private share sales to institutional buyers such as banks, insurance companies and mutual funds. A further Rs15,277 crore has been raised from initial public offerings.
A large part of these have happened in the last six months because people are still sceptical about the sustainability of the recovery. “No one has any conviction on how long this bull market will last,” said SMC’s Thunuguntla.
Indeed, with the pace of economic recovery in the West still under question, a potential debt default by Dubai government-promoted entities rocked global markets last week, sending the Sensex down 3.3% in just two days of trading.
Graphics by Sandeep Bhatnagar/ Mint
Ashwin Ramarathinam contributed to this story.