(4) Promoter Selling Stake For Personal Reasons
It is one of the most popular reasons why promoters are offloading stake. Like every investor, promoters do have several personal reasons to cut his/her stake.
Some of the personal reasons that can trigger a stake sale by promoters include health issues, family separation, loss of interest, pressure by the clients, charitable purpose, political uncertainty, economical constrains, & many more.
In such a situation, promoters often prefer to cut stake. It is something necessary to meet cash requirement for their personal needs.
Small investors don’t need to become nervous when selling is due to personal reasons. It is because there is nothing wrong in the fundamentals of the company.
Although, the stock can face some volatility sessions due to this event but you can take the advantage of this opportunity. Thus, investors can buy more shares of a fundamentally strong company.
[Read Also: 11 Ways Luck Can Help To Make Money In Stock Markets]
(5) Promoters Are Not Optimistic About Future Growth Prospects
It is one of the most critical reasons why company promoters selling stake in a given stock. Promoters are usually the biggest & most clued investors in their companies. Their shareholding pattern is often used to assess the future growth prospects of a company.
If a company growth prospects started deteriorating then its promoters are likely to cut their stake. A low shareholding pattern of promoters is often found to be associated with low confidence.
A low confidence of promoters is a clear indication of difficulties in future prospects. For example, promoter’s shareholding pattern in Satyam Computers was extremely low before the announcement of corporate fraud in it.
Similarly, promoter’s stake in Kingfisher Airlines was around 5% before it get closed forever. Thus, investors should act smartly if one or more promoters are cutting stake in a company.
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