Beware! India Inc's share pledging hits a high

Mumbai: Pledging of shares by promoters in NSE-listed companies saw a surge in August, with the value of stock pledged climbing to ₹2.77 lakh crore.Data compiled by primeinfobase.com showed that the quantum of stock pledged increased to 1.86% of the total market capitalisation from 1.23% as on July 31.While Vedanta Resources contributed a major portion to the increase in pledge for delisting Vedanta, the others were in need of liquidity as the Covid-19 outbreak caused a decline in cash flows, said analysts.“Besides the direct impact on demand and supply of goods and services, the pandemic has significantly impacted India Inc’s cash flows,” said G Chokkalingam, CEO, Equinomics Research & Advisory. “Generally, the pledge of shares reduces with the increase in stock prices, but this time it was the other way around because of falling operational cash flows.”Pledge creation transactions — fresh or additional pledge — took place in 29 companies with shares worth ₹90,353 crore pledged in August 2020. The largest pledge creation in August 2020 was Vedanta Resources, which has pledged 211.69 crore shares of Hindustan Zinc worth ₹48,413 crore to SBI Cap Trustee Company.Other large companies that have increased pledge of shares include Adani Ports, Ajanta Pharma, Apollo Hospitals, GMR Infra, Jindal Steel, JSW Energy, JSW Steel, Mahindra & Mahindra and Max Financial Services.“High pledge levels are typically not considered a good sign by the investors as a downturn in the market price can lead to… change in management,” said Pranav Haldia, MD, Prime Database Group. “Surprisingly, there were as many as 29 companies in which 100% of the promoters’ holding was pledged.”78025858While the Sensex gained 5% in August, BSE Midcap and Smallcap indices rose 8% each.As on 31 August 2020, shares were pledged in 463 of the 1,656 main-board companies listed on NSE, as compared to 461 companies as on 31 July 2020, showed data from primeinfobase.com. In 81 companies including Max Financial and GMR Infra, over 90% of the promoters’ shareholding was pledged.

from Economic Times https://bit.ly/3m9I4lZ
via IFTTT