Top stocks where promoters are increasing their stake

Promoters of Tata Chemicals and Welspun Corp raising their stake

Introduction

Promoters of many small and mid-cap companies are raising their stakes since Nov’20. Let us discuss two such companies where promoters are increasing their stakes by buying shares from open market. We will also take a look at what exactly promoters increasing their stake indicate.

Top stocks where promoters are raising their stake

What does promoter increasing stake in a company indicate?

• Usually, promoters raising their stake in company is a positive signal.
• This is mainly because it indicates promoter’s faith in company’s operation on the back of healthy earnings. Hence, he/she is willing to invest their personal funds in the company.
• Thus the promoter feels that the return on investment in increased stake will be much better as compared to other financial instruments available for investment in the market.

Let us discuss two such companies where promoters are raising their stakes.

1. Tata Chemicals

• Company is promoted by Tata Sons and the promoters have bought ~64 lakh shares since Nov’20. Value of these shares is INR 276 crore.
• This has led to increased promoter holding from ~31% in Sept’19 to ~35.5% in Sept’20.
• Tata Chemicals delivered strong returns of 64% since past one year and the stock has rallied ~47% since 1^st Nov’20.
• This has led to company becoming a mid-cap company from small cap. Company can be on radar of institutional investors and can have increased allocations from mid-cap funds.

• Recently, the company has undergone many structural changes, wherein a new company i.e Tata Consumer products – a FMCG focused company was formed as a result of merger between Tata Chemicals and Tata Global beverages.
• After the merger, Tata chemicals is now a pure play in chemical sector and can tap into the huge upcoming potential in specialty chemicals.

2. Welspun Corp Ltd

• Company is engaged in the business of production & coating of high grade submerged arc welded pipes, hot rolled steel plates & coils.
• As we know there is a positive sentiment currently around the commodity space. This can be a reason that promoters have bought ~40 lakh shares worth INR 52.9 crore since 1^st Nov’20.
• Currently, promoter has ~48% as against ~46% in Sept’20 . It is expected that the promoter holding may cross 50% in Dec’20 quarter.
• Company currently trades at comparatively lower PE of ~4.9x and has delivered lower returns (-6%) since past one year. However company has rallied 16.2% since Nov’20.