Billionaire founder share sales give unusual buy signal in India
To some degree, that’s the case in India, where shares trade at a 17% premium to those in the rest of the world. But there’s a silver lining here so potent that many in the market contend it outweighs the traditional bearish signals.
By reducing their stakes in the companies they founded or manage, insiders are creating space for local and foreign institutional investors to amass the kind of sizable positions they have long been unable to build.
Nearly half of all publicly traded shares have been squirreled away by insiders, at a time when investors have begun to view India as a rare source of rapid growth in the global economy. These sales, the argument goes, will spur asset managers to pour more money into the $3.7 trillion market, supporting a rally that recently lifted the nation’s equities to a record.
“It’s more a problem of free availability of shares than the supply of money,” said Anand Radhakrishnan, who oversees $3.6 billion of equity assets at Franklin Templeton India.
“India’s market has to become deeper and wider in terms of ability to handle large flows. This 50% ownership with promoters needs to come down,” he said referring to those who control the companies.
There are signs of that happening.
Founders’ holding in the NSE Nifty 200 Index fell to an average 48.1% at the end of September, the lowest on record, from 50.5% on Dec.
31, according to Prime Database. A chunk of the decline was triggered by stock sales from Adani family entities after a scathing report by Hindenburg Research in January expressed concerns over the founders pledging shares for debt.
Ownership by local institutions including mutual funds during the period climbed to a record 17.5% from 16.3%, while foreign funds’ stake rose
