Increases in stake promoters affect healthy return of stocks

Generally, the promoters or promoter groups are the ones who have a major control on the company and may also hold senior executive positions. As a result, they are in a better position to understand the company’s day-to-day performance and future outlook. Thus, a higher promoter and promoter group shareholding is considered as an ideal.

Furthermore, increasing promoters’ stake indicates that they are convinced of the stock price being undervalued or perhaps, the company is likely to grow faster in the future. To know how the increasing number of promoters’ stake reflects in the company’s share price, we have taken data of companies, whose promoters have been increasing their stake in the last four quarters (minimum market cap = Rs 500 crore).



With an increase in the promoters’ stake, the stock price of these companies also delivered a good return (except Steel Strips Wheels) from the start of Q3FY20 to yesterday’s close. Following is the stock return, which shows that increasing promoters’ holding does reflect positively in stock prices.



However, this may not be true all the time. There may be a false signal from the promoters to take the stock price northward. Thus, we urge investors to a conduct thorough analysis before investing.