Invest in Credit Risk Mutual Fund or not?

Lapping up of shares by promoters as well as institutional investors give some confidence to investors to zero in on a particular company. Data available with Prime Infobase showed that there were at least 11 companies on Dalal Street in which trinity of promoters, foreign portfolio investors and domestic institutional investors together increased stakes during the June quarter.

These companies in the list include SBI Cards & Payment Services, Tanla Platforms, Lux Industries, Jindal Stainless (Hisar), Bharat Rasayan, Suprajit Engineering, NIIT, Globus Spirits, Panama Petrochem, Thangamayil Jewellery and Vikas Lifecare.

Share price return

Barring Vikas Lifecare (down 10% YTD), shares of other 10 companies have advanced up to 198% since the beginning of the calendar year. On the top, shares of Panama Petrochem have gained 198% to Rs 293 on August 6 from Rs 98.20 on December 31. It was followed by Lux Industries (up 161%), Globus Spirits (up 128.89%), Jindal Stainless (Hisar) (up 111%), Suprajit Engineering (up 64%), NIIT (up 60%), Thangamayil Jewellery (up 51%), Tanla Platforms (up 35%), SBI Cards (up 19%).

Why did promoters increase stake?

Market watchers believe that that there can be various reasons due to which promoters’ shareholding in the company changes. Some of them are :
a. The promoter is confident about the prospects of the company and wants to increase the stake.
b. The promoter’s stake is low and he is concerned that, there could be a takeover bid and so he increases stake.
c. The company had issued convertible shares to the promoter who converts the same.
d. Any M&A activity may lead to a change (increase or reduction) in stake of the promoter.

If the promoter raises the stake based on future prospects or to protect against takeover bids, it is normally seen as a positive for the company. Also, if the convertible shares are converted at a premium to the CMP, it usually reflects the confidence of the promoter in the future prospects of the company.

Should you follow institutional investors?

Investors should never blindly follow institutional investors on any investment. They should make their own analysis and use the investment by FIIs and mutual funds as additional information which picking a stock. However, it must be noted that institutional investors have large research teams and they do proper study before investing in any company. Investment by mutual funds or FIIs may indicate that the company can be expected to be stable over a period of time or there may be signs of emerging stocks.