Promoter dilution in small, midcaps surges

The controlling shareholders of smaller and mid-sized companies are reducing their stakes at levels seldom seen since the 2008 global financial crisis.

- SACHIN P MAMPATIA

Over 20 per cent of companies listed on BSE MidCap and BSE SmallCap have seen a decline in promoter holdings for five consecutive quarters, reveals data from DSP Mutual Fund, shared with Business Standard. In the latest June quarter, the figure stood at 22.6 per cent. Similar levels were last seen in FY07. Both the midcap and smallcap indices reached all-time highs on September 24.

Further analysis by Business Standard, using Capitaline data, shows lower profit growth for companies in which promoter dilution has taken place.

The stake sales may reflect that a section of promoters feel their companies are overvalued, while others may be selling to convert some of their locked-in wealth into more easily accessible capital, said Nipun Mehta, founder and chief executive officer for multifamily office BlueOcean Capital Advisors.

In some cases, stocks have taken it in stride because of the fact that lower promoter share-holding means higher liquidity. "Markets don't seem to be taking it too negatively," he said.