Pledging of shares on NSE touches 7-year high

The pledging of shares by companies listed on the National Stock Exchange (NSE) has hit a seven-year high as of June 30, 2016.

In terms of value, promoters’ share pledging saw an increase of 11.29% on a year-on-year basis with the value of pledged shares going up to Rs 1.98 lakh crore as on June 30, 2016 compared to 1.77 lakh crore as on June 30, 2015 (it further increased to Rs.2.08 lakh crore as of August 11, 2016), Pranav Haldea, Managing Director of PRIME Database said.

According to Haldea, across all NSE-listed companies (including companies with no pledging), the percentage of promoter holding pledged went up from 15.57% a year ago to 16% on June 30, 2016 (further increased to 16.21% as on August 11, 2016).

On the capitalization front, the percentage of total market capitalization also went up marginally to 8.51% from 8.39% on a year-on-year basis. It further increased to 8.64% as on 11th August 2016, Haldea said in his report.

The increase in pledging of shares by promoters can be attributed to rise in share prices, Haldea added.

As on June 30, 2016, as many as 509 of the 1517 NSE-listed companies had pledged their shares (further increased to 522 companies on August 11, 2016), up from 496 companies a year ago, the PRIME Database report said.

According to Haldea, high pledge levels are typically not considered a good sign by the investors as a downturn in the market price can lead to invocation and a change in management.

Till June 30, there were 31 companies in which 100% holding of the promoters was pledged. This includes companies like, AGC Networks, Reliance Defence & Engineering, Visa Steel, Bajaj Hindusthan Sugar, etc.

The report said that Tata Consultancy Services, Adani Ports and Special Economic Zone, Cairn India, Zee Entertainment Enterprises, and JSW Steel were among the top five companies by value of pledged shares.

"The largest pledge creation transaction of the period (July 1, 2015 till June 30, 2016) was that of Tata Sons Ltd., promoter of Tata Consultancy Services, pledging 1.70 crore shares on January 22, 2016 to LIC (through Centbank Financial Services), the value of the pledged shares being Rs. 3,902 crore", Haldea said.

In the last one year, promoters shares of 45 companies were invoked and with United Breweries topping the list with shares worth Rs 442 crore invoked.