15 Solid Reasons Why Company Promoters Increasing Stake

Reasons Why Company Promoters Increasing Stake. Company promoter with a briefcase full of money & looking to buy more shares of parent company.

(14) Open-Up Possibilities Of Share Price Manipulation

It is one of the most unbelievable reasons why company promoters increasing stake in a given script. Share price manipulation is the act of artificially inflating or deflating the price of a security.

Mostly share manipulation is illegal in nature. Generally, it is very easy to manipulate the share price of smaller companies such as penny stocks. It is due to the fact that these companies are not closely watched by stock analysts.

When promoters of such smaller companies want to manipulate their share prices, they tend to increase their stake. An increased stake provides them flexibility to modify share price as per their own choice.

According to a post published in The Balance, promoters through their purchasing power can drive prices down & then buy back into the stock at lower price.

They ride the price up as others join the rally & pockets as hefty profits. Thus, investors need to remain extra cautious if promoters have a history of manipulating share price.

[Read Also: 10 Shocking Trading Activities Of Punters To Fool Investors]

(15) Stake Increase For Insider Trading

It is one of the most shocking reasons why company promoters increasing stake in a given stock. Insider trading is the illegal practice of trading on the stock exchange by someone who has access to confidential information about the security.

Promoters are usually the most informed investors in a publicly traded company. But, the can take the advantage of such confidential information to increase their stake.

According to a post published in Investopedia, insider trading can occur either legally or illegally.

An insider (or promoter) is legally permitted to buy & sell shares of the firm & any subsidiaries that employ him or her. However, these transactions must be properly registered with stock exchange regulators such as SEC in US or SEBI in India.

These types of legal transactions must be done with advance filings. Therefore, when promoters are sure to have positive news about the company in near future, they are likely to increase their stake.

Thus, investors can follow their footprints cautiously provided company is fundamentally strong.

Image Source: Shutterstock

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