Bears turn gaze on companies with high pledged shares

The stock market fell on Monday as investors — spooked by Essel Group founders’ inability to bring in fresh shares as collateral to make up for the stock price crash last week — turned wary of companies with high promoter share pledges. Sentiment was also jittery ahead of the press meet by Cobrapost, a website known for investigative journalism, on Tuesday. Cobrapost claimed it will reveal “the anatomy of India’s biggest financial scam” and that the scam is of around Rs 33,000 crore.

Sensex ended down 368.84 points, or 1 per cent, at 35,656.70, its lowest level since January 2. Nifty ended down 119 points, or 1.1 per cent, at 10,661.55, its lowest closing since December 11.

The Volatility Index surged 6.6 per cent to 18.9, suggesting traders expect near-term risks to the market. “Monday’s fall was largely related to concern about over-leverage in the system,” said Piyush Garg, CIO at ICICI Securities.


Shares of Adani Group companies came under selling pressure on Monday on worries that the promoters’ share pledge with lenders was high. Adani Ports and Special Economic Zone ended as the worst performer on the Nifty index. The stock ended the session with a decline of 12.7 per cent at Rs 327 after falling 20 per cent during the day.

Adani Enterprises ended down 0.7 per cent atRs 136.30 after falling as much as 10 per cent intraday while Adani Power fell as much as 20 per cent intraday before ending down 18.6 per cent at Rs 40.15. Adani Transmission recouped losses to end up 2 per cent, Adani Gas ended 9 per cent lower and Adani Green Energy fell 6.7 per cent.

“Market is catching those stocks where leverage against promoter holding is high,” said Sanjiv Bhasin, executive VP-markets & corporate affairs at IIFL. “The fall in Adani Group companies has nothing to do with fundamentals. I expect them to make a comeback as the fundamentals of the companies are strong,” said Bhasin.

Sterlite Technologies, which has 96.7 per cent of promoter holding pledged, ended down 7.8 per cent while Jindal Stainless, another company with high promoter holding pledged, ended down 6.5 per cent. Reliance Infrastructure and Reliance Power also ended down 5 per cent and 4 per cent, respectively.

On Friday, Essel Group stocks such as Zee Entertainment and Dish TV plunged between 20 per cent and 30 per cent after a news report alleging links between the Essel Group and Nityank Infrapower, a company being probed by the Serious Fraud Investigation Office (SFIO) for deposits of over Rs 3,000 crore after demonetisation. After the initial drop in these shares, the declines steepened on the sale of pledged shares, which market participants believe belonged to the promoter group.

While shares of Zee rose 16.6 per cent and Dish gained 5.5 per cent on Monday after the agreement between Zee promoters and lenders to provide a three-month breather while Zee found a buyer, the market’s attention shifted to other leveraged stocks.

“Zee itself went up because of short covering but stocks with high pledged shares saw selling. While the pledged percentage is high, I don’t believe that the weakness will continue,” said Dharmesh Kant, head of retail research at IndiaNivesh Securities.

Promoters have pledged 45.5 per cent of their 62.3 per cent promoter holding in Adani Ports and pledged 44.4 per cent of their 74.9 per cent holding in Adani Transmission, according to data compiled by ETIG Database. The promoters have pledged 36.7 per cent of their holding in Adani Green Energy and 29 per cent of their holding in Adani Power.

NBFC stocks were also among the big losers in Monday’s trade. Indiabulls Housing Finance fell 6.5 per cent to end the session as the second worst-hit stock on the Nifty. Bajaj Finance’s shares ended down 5.4 per cent ahead of its December quarter result on Tuesday.

Brokers said the focus is expected to shift to the interim Budget on Friday. Market participants will watch out for sharp slippages in fiscal deficit target. The market is expecting a deviation in fiscal deficit target by 20 basis points to 30 basis points beyond the budgeted target of 3.3 per cent for financial year 2018-19.

The RBI policy review is due on February 7. Investors are also waiting for the outcome of the latest policy meeting of the US Federal Reserve, which is due to conclude on Wednesday.