Promoter pledging falls to seven-quarter low as markets surge

Pledging of shares by promoters (among BSE 500 stocks) is down for the first time in seven quarters. The amount of total pledged shares fell to Rs 1.54 lakh crore in the September 2014 quarter against Rs 1.79 lakh crore in the June quarter, according to data compiled by kotak institutional equities.

Freeing of pledged shares by promoters of HDIL, Gateway Distriparks, NCC, Dish TV, Indiabulls Power, Elder Pharma, Aban Offshore and Motherson Sumi has contributed to the decline in the number. Interestingly, promoters of HDIL have revoked the entire pledged holding.

On the other hand, promoters’ pledging has increased in Reliance Capital, Indiabulls Housing Finance, KSK Energy and Gitanjali Gems.

Promoter pledging refers to using stocks as collateral to funds from a bank. But it does not necessarily mean that a promoter is in financial distress. When the market is choppy, lenders ask borrowers to pledge more shares to meet margin requirement. Similarly, in a bull market, as is the case now, a part of the shares is returned to the borrower. This has also brought down the total pledged amount.