(2) Promoter Looking To Book Some Profit
It is one of the most authentic reasons why company promoters selling stake in securities. Stocks are usually found to trade around their fundamental or intrinsic values.
Sometimes, stock valuation might reach its fundamental or true value or moving ahead of its fundamental value. In such a case, when stock valuations are stretched, promoters might consider to sell partial or majority of their stake.
Sometimes, they may prefer to sell partial or entire stake after the end of lock-up period in an IPO issue. It is an absolutely normal step to book some profits from prevailing price rise.
Small investors should not worry about such stake sale provided others conditions are constant. It is because promoters are also invested in a company to get benefited from the stock price appreciation.
Therefore, promoters can collect huge money easily even by selling their minority stake. This is something that was not possible even by selling majority stake before price rise.
(3) Promoter Raising Fresh Capital For Project Expansion
It is one of the most common reasons why company promoters selling stake in a given stock. Every project needs some form of capital that needs to be infused from time to time.
However, the demand of fresh capital can increase significantly especially when a company has expanded aggressively. In such a scenario, stake sale or equity dilution is often the preferred & low-cost option.
Promoters might go for stake sale to raise fresh capital for the growth of business. This has been commonly found to be true in capital hungry businesses.
Some of those capital hungry businesses include banking, financial services, & even infrastructure businesses. Whenever fresh shares are issued to investors then a corresponding decline in promoter’s shareholding pattern is observed.
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