Promoter Buy or Sell its own Company Share what does it mean for an Investor
Many times you must have noticed that Promoter or Director or immediate relative of promoter buy or sell shares of their company. This is covered under insider trading
Should investors take any indications from such insider trading – Answer is Yes.
In this article, we will discuss why investors should monitor such insider trading from Promoters, Directors, employees or immediate relative of director or promoter of any company.
Such insider trading, can give direct signals to buy or not to buy or even sell any stock you have in your portfolio.
Let’s discuss both the Scenario one by one
Scenario I: When Promoters Sell Stake
Generally, it is considered in negative terms, when any promoter reduced its stake from the company as it termed as, promoters are no more interested in the business of the company or they are expecting lower growth or lower profit going forward.
But, there can some other factors, should also be taken into consideration before coming to any conclusion.
#1 Promoter may need funds: While Promoters are selling their stake, they might be in need of funds and through selling their stake they just want to utilized funds for personal use and it might have nothing to do with company
#2 Due to any Legal Compliance: Promoter may be selling stake to meet any legal compliance. For example, as per SEBI rule, no promoter can hold more than 75% stake in any company and to meet this norm recently promoter of Avenue Supermart has sold few % of its stake.
#3 Promoter want to diversify: Promoter may have planned to diversify their investment as they might have any other opportunity and to meet their objective they may have sold stake in the current company.
So, when you notice that promoters are reducing stake try to find out the reason and based on your research take any action, if required. It should not be always taken as negative for Stock.
Scenario II: When Promoters raise Stake
Generally, it is taken as very positive for company and its stock when promoter raise stake in the company as it shows that they have full confidence in the company or they are seeing growth in coming days.
Nobody knows the company better than Promoters and if they are bullish about company future, it is the best time to buy that stock provided there is no corporate governance issue in the company.
So, we have discussed both the scenario and indications which they are giving to investors. Hope, now onwards you will focus on such insider trading and act wisely.