Thursday, February 24, 2011

Are insiders fool?

Generally when the Sensex/Nifty trades at more than 20 times earnings, the insider buying to selling ratio remains very low. But when a stock become cheap, promoters buy shares of their own company, both to provide confidence as well as increase their stake in the company at a bargain prices. I had seen this happening a lot between October 2008 - May 2009. Banco Products, Sarla Performance Fibers, Precision Pipes & Profiles Company, Asahi Songwon, ZF Steering Gear and many other companies' promoters bought heavily to increase their holding in their companies. All these companies have generated extraordinary gains since the bottom in March 2009. Banco Products has gone up from INR 15 to INR 70, Sarla Peformance from INR 30 to INR 115 today, Precision Pipes from INR 35 to INR 100 today, Asahi Songwon from INR 13 to INR 68 today and ZF Steering has gone up from INR 100 to INR 295 today. Contradictory to general perception, even at this Sensex/Nifty levels, some of the promoters who were not able to increase their holdings at rock bottom prices in March 2009 have bought shares in their own company between September 2010 and February 2011 and their shares are available today below their own buying price. Some of the examples are given below in the table:
CompanyNo of Shares Bought (% Equity)Average PriceCurrent Price
Dynemic Products92563 (0.817%)22.8822.8
Wimplast65547 (1.09%)193.15160
Ador Welding23117 (0.17%)164-201167
Garware Wall Ropes23718 (0.1%)74.1758
Patels Airtemp33703 (0.665%)NA69
There might be more companies than what have been mentioned here. BSE/NSE does not provide a clean interface to easily find out the way to get insider buy/sell information. This clearly shows that there is a large gap in terms of valuation between Sensex/Nifty and small cap companies. When big companies are trading at 25-40 times earnings, the promoters of small-cap companies are not finding any takers. Some of the selling pressure is coming due to large institutional investor (read LIC) liquidating their stake in a company (read Garware Wall). Promoters may be trying to provide a floor to that.
I don’t think man should have to learn easy lessons in such a hard fashion. You should be able to learn not to pee on an electrified fence without actually trying it. - Charlie Munger
Image: jscreationzs /
Bookmark and Share

No comments:

Related Posts with Thumbnails