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Promoters Know the True Value of their Company Better Than Anyone – Know how now!

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We’ve seen the markets being flat over the past two months. The reasons – well there are two. Foreign Institutional investors (FIIs) selling-off coupled with the coronavirus variant Omicron-led panic selling. We will focus on the first one for now.

We can’t talk about the sell-off without acknowledging the major contribution foreign direct investments (FIIs) have in pushing the markets to new highs.

FIIs are the key drivers of Indian equities. They invested an astounding Rs. 2.75 lakh crore in the stock market during FY21, touching a two-decadal peak.

In FY22 as of Sept 22, 2021, these guys invested an additional ~Rs. 31,498 crore in Indian equities. However, they have been selling for the last two months. It became a cause for the downturn in the Indian markets.

So, why are FIIs selling?

Before we answer this question, let us tell you, there is no harm in selling to book profits from your investments. Because you make money only on the day you sell; other days, the gains are unrealized.

After investing lakhs and thousands of crores in the Indian markets, the FIIs have started getting their gains. Yes, the concerns around inflated valuations are true. However, that does not make long-term investments in Indian companies less profitable.

We wrote in our earlier articles too. Foreign institutional investors made a lot of money through Indian equities. Now they are booking profits and taking some money off the table.

Since the Indian markets seem overvalued, FIIs may have moved to other cheaper markets for short term. It doesn’t mean that they won’

Promoters stock up on shares available at bargain

Warren Buffett, the most successful investor, once said, “Be fearful when others are greedy and be greedy when others are fearful.”

It is what most intelligent investors do. Needless to say, promoters are a set of intelligent investors.

Sharp corrections in several fundamentally solid stocks have given promoters an unmissable buying opportunity. It won’t be wrong if we say the correction in such stocks has made them happy.

Promoters of nearly 120 companies have bought shares of their companies from the open market since Oct 1. These companies include large-cap and mid-cap stocks such as JSW Steel, Adani Green, Bajaj Holdings, Bajaj Auto, Bharti Airtel, and more.

 

Promoters that bought stocks since October 1

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Per the BSE data, IGH Holdings, a Kumar Manglam Birla Firm, has acquired shares worth Rs. 182 crore in Grasim Industries. The Adani Group has purchased shares worth Rs. 180crore in Adani Green. Bajaj Group units Bachhraj Factories and Bachhraj & Co. have bought Bajaj Holdings’ shares worth 113 crores.

Vedanta promoters, Twin Star Holdings, and Vedanta Netherlands Investments BV bought 167.5 million company shares last month for Rs. 5,858crore.

What does this buying spree indicate?

Here are a few important lessons for investors like you

Promoters play a crucial role in the company’s growth. There is a big difference between promoters and shareholders.

A promoter conceives the idea of setting up a company and performs all the initial activities to set it up. The promoter can be an individual, firm, group, or company.

Though an investor like you gets part-ownership in the company, you don’t become a promoter.

Coming back to the lessons. The promoter holding is one of the key metrics used to gauge how strong the company’s fundamentals are. If promoters have more stake in the companies, it shows their faith in the organization and its business.

As insiders, promoters know the underlying value of their business. Hence, they see long-term value in the company’s stock price.

Securities and Exchange Board of India (SEBI) regulations allow a promoter to buy up to 5% equity of a company in any financial year from the secondary market through the creeping acquisition route.

Promoters, buying shares of their companies amid recent corrections, believe temporary, weak sentiment could overshadow the fundamentals of their companies.

All in all, the current numbness or downturn in the Indian equities does not imply there are concerns around India Inc.’s fundamentals.

The stock markets may be down; but they will reach new highs soon. Things can change in the blink of an eye, and the pandemic is proof of that.

 

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*Disclaimer: Information mentioned in this email is for educational purposes. Please do not consider it a recommendation to buy/sell/hold from Research & Ranking.

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