Promoters of small & mid cap firms take advantage of market meltdown

15 Feb, 2008, 1210 hrs IST,Vivek Sinha, TNN




NEW DELHI: It's not just the portfolio investors who were bottom-fishing in the market. Promoters of a bunch of mid and small-cap firms have taken advantage of the market meltdown to buy shares of their own companies from the open market through the creeping acquisition route.

Some companies whose promoter groups have bought shares in the last fortnight when the market crashed include NIIT, Maharashtra Seamless, Gujarat NRE Coke, Uflex, KRBL, Hitech Gear, Birla VXL and Jyoti Structures, among others.

Promoters raise their equity stake for various reasons. Typically for shoring up equity holding or infusing funds into the company, the owners go for preferential allotment of shares or convertible instruments such as warrants.

The creeping acquisition route of buying shares, for which there is a mandatory ceiling in a particular year, entails buying shares from the secondary market is typically done when promoters feel the price in the market is low enough to justify such a purchase. Some firms with healthy cash reserves even go for equity buybacks which in turn tends to increase promoter holding while repricing undervalued stock.

According to stock market disclosures the firms have bought shares of varying proportions in the open market. For instance, one of the promoter group entity of NIIT bought 0.27% stake from the market. The transaction was done at a price 15-20% cheaper than its recent highs.