Ratan Tata, Tata Sons buy Tata Motors shares

Ratan Tata, chairman of the $83 bn Tata group, has increased his personal stake in Tata Motors. Tata Sons, the group holding company, has also consolidated its holding in the company.

In June 2012, Rata Tata picked up 425,000 shares of Tata Motors, while Tata Sons has acquired 300,000 from the open market, according to the data disclosed to stock exchanges.

The insider trading activity in a company is a lead indicator of whether a share price of company is expensive or cheap. If company insiders buy more shares, the company’s share price could be considered as cheap. If company insiders are net sellers, the value could be heading to the top.

Here are trends for some key BSE Sensex companies for June 2012:

Tata Motors: Ratan Tata picked up 425,000 shares while Tata Sons has picked up 300,000 shares. Rata Tata owns 1.36 million shares of Tata Motors. Tata Sons control a 25.48 per cent stake in the company. The company reported a decline in domestic and commercial vehicle segments for the month of June 2012. Analysts expect pressure to continue on company’s profitability in the light of weak profits on luxury car sales in China and slowing commercial vehicle sales in India. Tata Sons is expected to further consolidate holding in the company if the share price falls further.

Jindal Steel and Power: Naveen Jindal bought 560,000 shares of the company. He is executive vice-chairman and managing director of the company and now owns 3.3 million shares of the company. He clearly believes that the company’s share price is low. The company is expected to invest Rs 20,000 crore on expansion. According to analysts, a lot rests on coal supply from the Utkal coal block. The company expects the mining lease to be signed in next three months. The power generation business needs this coal supply. This has created an element of uncertainty over the future profit growth, an analyst said.

ITC: ITC’s whole-time directors K.N. Grant and P.V. Dhobale have been sellers in the market. At current prices, ITC shares are trading at a record high price-earnings multiple. The market is also paying a significant premium to the BSE Sensex to own ITC shares. This is largely because investors are playing a defensive strategy by buying more of ITC shares. Company insiders are cashing out in the light of high premium received by the company’s shares.

HDFC: Company insiders were net buyers in June 2012. They bought 210,000 shares. According to analysts, the company faces strong competitive pressure in the housing loan market. The share price has remained steady at current levels over the past one year. Macquarie Securities, an affiliate of the Australian Bank, recently downgraded the stock for aggressive accounting practices which were vehemently denied by the HDFC management.

HDFC Bank: The top brass of HDFC Bank has been buying and selling shares of the company.  The BSE data reveals that HDFC Bank insiders sold 361,000 shares. They also bought 314,000 through an employee stock option programme.  This implies an overall net selling by insiders. HDFC Bank is the most preferred banking stock in the market ranking high up on most parameters. However, analysts say that this also makes it the most expensive banking stock to own in terms of valuation. They do not see a significant upside in the share price.