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Tata, Bajaj among 277 promoters that hiked stake in group firms in March

Analysts say the promoters are using this opportunity to buyback is a typical feature of a bear market
The 40 per cent correction in benchmark indices from their January 2020 peak has prompted promoters of companies to buy/raise their stake in group companies. According disclosures made by the companies to stock exchange, promoters of 277 firms large as well as mid-and small-sized companies bought 267 million equity shares worth of Rs 3,745 crore in the month March alone via open market purchase.

Indian markets have seen an unprecedented correction over the last two months with the Nifty50 and S&P BSE Sensex corrected 40 per cent and 39 per cent from their respective all-time highs touched on January 20, 2020. The benchmark indices slipped 23 per cent thus far in the current month. Last week, the indices hit their lowest level since May 2016.

Analysts say the promoters are using this opportunity to buyback is a typical feature of a bear market that serves two basic purposes - one is to buy shares at an attractive price and the second is to instill confidence in the minds of shareholders that the promoters are still backing the company even in turbulent times. That apart, some promoters also believe cash could be put to better use through buybacks rather than being locked up in a fixed deposit or remain idle.

“The trigger for hiking stake has been the price crash. If the return on capital employed (ROCE) is in double digits and the company is fundamentally sound, it justifies the long-term objectives of the company also. If a promoter is sitting on cash, it is always beneficial to invest where there can be a healthy ROCE going ahead. Buyback is better in such bear markets as the money invested can get better return than a bank deposit or any other investment,” explains G Chokkalingam, founder and managing director at Equinomics Research.

Among the lot, the highest quantum of promoter buying was seen in Tata Group companies that includes Tata Chemicals, Tata Steel, Indian Hotels, Tata Motors, Tata Power and Tata Consumer; Bajaj Group firms Bajaj Finance, Bajaj Finserv, Bajaj Holdings and Bajaj Auto; and Godrej Group companies - Godrej Industries and Godrej Agrovet.

Tata Sons has bought total equity shares worth of Rs 1,011 crore of six group companies during the month. The stock price of Tata Steel, Indian Hotels Company and Tata Power Company slipped between 38 per cent and 46 per cent in CY20. On the other hand, Mphasis’ promoter, Marble II, acquired 7.5 million shares representing 4 per cent of total equity worth of Rs 525 from the open market. The stock of the information technology (IT) services firm hit 52-week low of Rs 612 on March 23, and has corrected 33 per cent in CY20.

A K Prabhakar, head of research at IDBI Capital, too, says that the promoters are utilizing this opportunity to instill confidence in the retail investors via the buyback route. “Valuations are attractive for promoters to buy aggressively in case they have surplus cash in their balance-sheet,” he says.

The promoters of HCL Technologies, JSW Steel, Adani Ports and Special Economic Zone, Mphasis, Maruti Suzuki, Sun Pharmaceutical Industries, GMR Infra and Indiabulls Housing Finance, too, increased their stake in their companies. Many stocks have seen significant and meaningful corrections thus far in the calendar year 2020 (CY20) with prices of several of them crashing more than 50 per cent their respective 52-week high.

        Company                                               Shares acquired in
million Rs crore
Mphasis 7.5 521.17
Tata Steel 15.5 456.77
HCL Technologies 9.1 392.57
Indian Hotels 19.8 213.38
Tata Chemicals 2.6 160.22
JSW Steel 8.3 141.88
Maruti Suzuki 0.2 134.26
GMR Infra. 81.3 133.81
Tata Power Co. 27.3 109.35
Bajaj Holdings 0.4 100.23
Source: Stock exchange
Promoters bought shares from open market in the month of March

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