Unlock the Potential of High Margin Stocks with High Promoter Pledge: NSE Circular

Overview

Stock exchanges of India BSE and NSE with Markets regulator Sebi have decided to levy minimum margin of 35 percent on the stock (including stocks in FNO)

Where promoters pledged their holding by more than 25 percent of the total equity capital and have a market capitalisation of over Rs 1,000 crore.

These steps are taken to have additional surveillance on stocks with high promoter pledge.

This circular is being issued by the Exchange as a surveillance measure with a view to ensure market safety & safeguard interest of investors.

This steps might effect some of the stocks in FNO segment in short run. However in the long run this would be really beneficial for the investors wealth.

In June, the Securities and Exchange Board of India tightened the norms for disclosing the details of pledged shares by promoters.

Apart from above, the other criteria that will attract higher margin are concentration of the top 25 clients in trading during the last 30 days is 30 percent or more.

If the price variation between high and low of a scrip is greater than 40 per cent in the last three months.

The new surveillance measure will be implemented with effect from November 1, 2019.

List of Some of the Stocks With Higher Promoter’s Pledge to total Equity

As an illustration, current margin for Torrent pharma is 12.52% while for Adani ports it’s 13.12%.

However as per NSE new norms the required margin will be 35%. Read the complete circular here.

In the past there are several occassions where stocks in the FNO segment moved extensively within a day(DHFL fell 60% intraday).

This steps will help in reducing volatility in stocks with high promoters pledge.

The decision to implement the additional surveillance measures has been taken in a joint meeting of markets regulator Sebi and exchanges.

As per the circular, the surveillance measure is “without prejudice to the right of Sebi and exchanges to take any other surveillance measures.

In any manner, on a case to case basis or holistically depending upon the situation and circumstances as may be warranted,”.

Sebi had said now promoters will have to furnish reasons if combined encumbrance crosses 20 percent of the company’s equity capital,”.

Investors can also use a stock market heatmap to compare the performance of stocks and sectors and identify unusual market movements. This can provide additional context when assessing volatility in stocks affected by high promoter pledging.