Tuesday, June 07, 2016

Photo: The Business Standard
Many investors/traders, invest on the basis of insider trading, as promoters mostly buy on the hope that the company will do well in future. on the other hand the Retail (small) investors are often advised to be wary of insider selling, as this might indicate the company is not in good financial health. After all, who knows the company better than its own promoter? As stock markets were volatile in Jan-Feb 2016, many promoters bought the shares of their companies. 

Some companies that saw huge insider buying were Adani Power, Aditya Birla Nuvo, Bharti Airtel, Grasim, Kansai Nerolac, KPIT Technologies, Lanco Infratech, MRF and Welspun. 

Insider selling was seen at Infrasoft Technologies, Jaiprakash Associates, Max Financial Services, Pipavav Defence and Offshore Engineering, Unitech and Wockhardt.

However, according to some experts, combined with the insider buying data, one should look at management, price/earning ratio, etc, before investing in a stock.

Moreover, sometimes, insider buying and selling could be merely a vesting of options because the vesting period has come to an end. Sometimes, promoters buy only to reduce their cash balance or increase the free-float earnings per share.

According to Prime Database, announcements have been made for buying back shares worth Rs.2,220 crore in 2016 so far. In FY15, the total value of shares bought back was Rs.650 crore.

The Securities and Exchange Board of India (SEBI) amended the buyback rules in 2013 specifying that the minimum amount that a company is required to buy back should be 50% of the offer size, against the earlier practice of 25%. SEBI also limited the buyback period to six months, from the time the approval has been sought from the board or shareholders, because it found that companies typically did not utiilise the entire period of one year to complete the buy back.

Earlier this year, Just Dial, Borosil Glass, Himalaya Granites, Technocraft Industries, Tips Industries successfully completed buying back shares worth `550 crore from investors. While companies like Dr. Reddy’s, OnMobile Global, Excel Industries and ECE Industries currently have their buyback offers ongoing.

A six month old report showed that some companies, including Eveready Industries, Force Motors and Welspun India, have seen their share price increase multifold one-year after an increase in promoter holdings. 

Similarly, others such as Adani Ports, ABG Shipyard and Cox & Kings have seen an erosion in their stock prices after a dip in their promoter holdings. 

Source: Internet (edited)

Post a Comment