Rising promoter pledge singes Kalyan Jewellers stock
Source: Live Mint
Panicky investors hammered the shares of Kalyan Jewellers Ltd following a stock market disclosure on Monday that the company’s promoters had pledged an additional 5.79% of their shares last week.
That takes Kalyan Jewellers’ total promoter pledge to 25.87%, per BSE data.
The stock had lost a third of its value despite Kalyan Jewellers’ management early last week seeking to quash rumours of a tax raid and of bribes paid to a fund manager to inflate the stock. On Tuesday, the stock cracked another 8%.
After Tuesday’s fall, the stock is down nearly two-fifths of a percent at ₹488.35 per share, down from its record high of ₹795.4 on 2 January.
On Thursday, 16 January, the stock exchanges banned fresh trading of Kalyan Jewellers’ stock futures and options contracts in the derivatives segment after trader outstanding positions in the counters came close to the threshold or limit for such positions.
While Kalyan Jewellers officials were not available for comment immediately, a person familiar with the developments said the additional share pledge by the promoters was to comply with the requirements of an existing loan.
“The additional pledging of shares last week by the promoters was to comply with the maintenance requirements of an existing loan, availed in September to increase their stake in the company,” said this person, declining to be identified. “This adjustment is a routine measure in response to share price fluctuations in a bearish market.”
Kalyan Jewellers’ promoters, including T.K. Seetharam and T.K. Ramesh Kalyanaraman, had pledged stakes amounting to 20.08% of the total promoter holding of 60.47% in September to fund the purchase of a 2.36% stake in the company that was being sold by private equity major Warburg Pincus.
With Kalyan Jewellers’ share price falling since then to new lows recently, additional shares had to be pledged, per the loan covenant.
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Tuesday’s shocker
Investors took the news of the additional promoter share pledge negatively on a day when the benchmark indices fell by over a percent-and-a-half, and sold the Kalyan counter heavily.
“News of the pledge accentuated the fall especially when markets overall were hammered by the bears,” said Rajesh Palviya, senior vice president–head, technicals and derivatives, at Axis Securities. Palviya expects the Kalyan Jewellers stock to stabilise at around the ₹460 level.
Interestingly, as Kalyan Jewellers’ share price dropped this month some investors purchased significant quantities of the stock, availing finance from brokers to fund their purchase.
Per the margin trading disclosure report uploaded by the stock exchanges on Friday, overall broker funding for Kalyan Jewellers’ shares jumped from a mere ₹78 crore on 1 January to ₹227 crore on Friday.
This could have happened because clients believed that the stock had bottomed out at around the ₹500 level. However, Tuesday’s shocker belied these hopes.
A broker requesting anonymity said part of these shares could have been liquidated in Tuesday’s rout with some clients likely being unable to top up their margins. The normal haircut taken by brokers for the Kalyan Jewellers’ stock was 35-40%, against 15-20% for blue chip stocks.
The futures and options trading ban on Kalyan Jewellers will continue on Wednesday, with client positions at 81.4% of the threshold or marketwide position limit. The client position has to fall below 80% for the stock to exit the ban.
