Mumbai: Sharp recent falls in a handful of Indian mid-cap stocks have raised concerns among investors over the potentially destabilizing impact of margin calls on shares pledged by company owners.
While pledging shares is a popular way for owners to raise short term capital, minority investors can suffer in the event of a margin call if that ultimately forces lenders to sell shares they hold as collateral.
Of 1,310 companies with more than Rs100 crore ($22 million) market capitalization, promoters of 445 companies had outstanding pledged shares at the end of March, according to a Bank of America Merrill Lynch report released on Friday.
The total value of pledged shares was about $33.2 billion, or 2.4% of India’s total market capitalization of $1.4 trillion, Bank of America-Merrill Lynch said.
Tata Consultancy Services , India’s biggest software services firm, had the most promoter-pledged shares by value, at $4.9 billion, the note said.
United Spirits, Nagarjuna Fertilizers and India Cements were among 17 companies with more than 90% of their promoter holdings pledged, according to the report.
Promoters of another 116 companies including Unitech, Suzlon Energy and Adani Power had 50-70% of their holdings pledged as of March, it said.
The Bombay Stock Exchange (BSE) 30-share Sensex is down 11% year-to-date.