(12) Accumulating Undervalued Shares
It is one of the best reasons why company promoters increasing stake in a given security. Ideally, stocks should trade around fair value of a company. But, there are several stocks that trade either at lower valuation or higher valuation in the stock markets.
These stocks are likely to reach its fair value after some time. If the stock of a fundamentally strong company trades below its fair valuation then promoters may increase stake.
It is simply done to get the advantage of buying shares at cheaper valuations. These accumulated shares can eventually be sold out at higher or right valuation after some time. It is a great step to generate profits from share trading.
However, these types of opportunities are often missed by public shareholders. It is because they are often ignore the true value of a given stock.
Thus, small investors can also follow the footprints of promoters in such a case if they find any undervalued stocks.
[Read Also: 16 Tricky Ways To Identify & Pick Multibagger Stocks]
(13) Reducing The Number Of Floating Shares
It is one of the most authentic reasons why company promoters increasing stake in a given equity. Floating shares are those shares that can be freely bought and sold by public investors.
Its quantity may change depending on buyback offers by company as well as issuing of new shares from authorized shares from within its treasury.
For example, a company XYZ has 1000 authorized shares. If it offers 300 shares in an IPO issue, gave 150 shares to executives & retained 550 in the treasury. Here, number of outstanding shares would be 450 shares (300 floating shares + 150 restricted shares).
When promoters start accumulating floating shares from public then the number of floating shares gets reduced. This reduction in number of floating shares can cause stock price to rise significantly.
Thus, small investors can buy & hold their shares if promoters are buying to reduce number of floating shares.
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