(2) Stake Increase To Cover Conversions
It is one of the most significant reasons why company promoters increasing stake in a given script. Every business needs some form of capital infusion to meet the rising cost of projects. This capital can be raised not only through equities but also through various hybrid investment options.
Some of the popular hybrid investment options that can be issued by a company include warrants & bonds. They often carry the option of their conversion into equity shares on the date of maturity.
If the option of converting bonds into equity is exercised then promoters have to issue shares to bond holders. This can be done either by issuing fresh shares from treasury of the company or by issuing already issued shares.
In later case, shares have to be bought for the conversion from open market else promoter’s stake will decrease.
Thus, promoters start accumulating shares from open market in installments. It is necessary to cover conversions on date of maturity of warrants & bonds.
[Read Also: 15 Big Reasons Why Company Promoters Selling Stake]
(3) Boosting the Confidence Of Investors
It is one of the most unbeatable reasons why company promoters increasing stake in a given security. Share price of a company is not constant in nature. It can move upside or downside along with the prevailing trend of the stock markets.
Promoters can buy shares of their company especially when their value is falling in stock markets. If they do so it would be a great step to boost the confidence of all types of investors, particularly small investors.
This provides a green signal to investors that company management is still confident of their company future for upcoming quarters.
Once investors gain confidence, it becomes easy for them to maintain their positions even when market sentiments are negative. Thus, long term investors can prevent emotional selling in stock markets.
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