4 corporate actions triggered by high stock valuation: An investor alert
Learn to interpret some actions by promoters and companies that offer critical signals to investors!
N V Chandrachoodamani
Chandrachoodamani started his capital market career in mid 2000s with Equity Intelligence India and then worked with several capital market Intermediaries in various roles over the last 15 years. Most of his career experience has been in equity research and PMS. Most recently, he was with MOAT, a PMS firm. He is a graduate in mathematics, a post graduate in finance, and holds a CFP certification. LinkedIn|Twitter
All Posts »
More like this
Nifty IT Stocks Rally: A price bounce or a sector turnaround?
PrimeInvestor Research Team
August 4, 2026
Read More »
Technical outlook: Promise in Consumer Durables, the grind continues in Nifty50
B Krishnakumar
August 3, 2026
Read More »
24 thoughts on “4 corporate actions triggered by high stock valuation: An investor alert”
OUTSTANDING. OUTSTANDING. OUSTANDING. Please accept a standing ovation from me on this brilliant piece of research. Could we now take this to the next level with a sub-service offering containing focused stock recommendations for 2025 (pardon my greed – just trying to make this more actionable) tracked monthly and updated quarterly or other frequency? Sorry if my suggestion is redundant and this already reflects in your recommendations. Happy New Year, Sir.
Accept your appreciation on behalf of Chandrachoodamani who is on vacation. Thanks 🙏😊 And appreciate your suggestion. We will be coming with an annual outlook and then calls through the year depending on opportunities – through Prime Stocks. We do not provide a bouquet of calls in on shot as 2025 picks as we like to wait for the right opportunity even for the right stock. Thanks, Vidya
Could you also do an article on the other side of the coin e.g. special situations like PE stake buys (instead of sell) like for example, PE acquisition of R systems, CVC partners acquisition of Aavas financiers etc.? How one can analyse such actions to benefit from?
Welcome your query sir,
This is a very good point with increasing relevance in our market. There is a big change going on from promoter/family-owned enterprises to institutions owned enterprises in our market now
All the new-age tech biz that got listed were largely institutions owned than promoters/founders owned. The founders were open to equity dilution to any extent with one goal of scale building
Same was the case with affordable housing finance Cos, which are all PE owned. In this space, it appears like PE’s were ready to back entrepreneurs coming from lending background and build business models that earn superior RoA and RoE so that they also get a rich exit
We have also seen mid-cap IT Cos also going completely owned by institutions like Co-forge and Mphasis now. The L&T group Tech twins are completely owned by institutions by virtue of 100% institutional ownership of parent
Even conventional businesses like Crompton, Eureka Forbes have gone PE/Institutions owned while VIP is now on block for acquisition by PE. One of the largest Auto Comp Cos listed, Sona BLW, has diluted promoter stake from 67% at the time of IPO to 27% now and is still fetching premium valuation
This is how the landscape is evolving in our market and investors need to take cognizance of that while evaluating Cos. Like the long term intend, depth of mgmt. team, how beneficial to shareholders, etc
It will be interesting going ahead to see how value creation will shape up between promoter/founder owned Cos Vs institutions owned and developing a good qualitative framework in evaluating them may sound good as well
Hope this clarifies to some extent
Thank you
Insightful article.
How do you see exit of Bain capital from Axis Bank?
Welcome your query sir,
That was quite a natural process of investment and exit as bain capital chiped in for re-capitalisation post the 2014-19 banking sector crisis
It was in 2017 and that was a time when Axis bank just escaped reporting losses (FY18) and it was not easy for them to go to market than doing a rights issue (FY18 standalone PAT was just 276 crore)
So, it really required someone to chip in with large committment, re-capitalise and stay through recovery and Bain Capital did that. 11,000 crore is such a large investment in the situation, 7 years ago.
So, it is quite a natural progression in terms of investment and exit by a PE investor
Hope this clarifies
Thank you
Very insightful article.
Thank you sir
Thank you for your composition!
I’ve read nearly couple of dozen from you since you joined PMI. This seemed the best.
It reminded me of another article (magnum opus) by your colleague Aarthi on the REIT subject.
Reading a great content like this makes my day.
Wish you all the best.
Thank you sir
Very informative article. Thank you
Excellent article & very succinct in making relevant points, Thanks. You could have included current/ongoing corporate actions such as ITC demerger , UPL rights issue etc to make it even more relevant to current times. May be this deserves a follow-up article.
Thank you sir and welcome your comment. Will try my best to include “current” corporate actions as well in future articles.
Pls do. Recently a friend asked me what separates primeinvestor from other similar sites. I can point out this article as a reference – for a serious student of investing or even MBA this is a very good article. Including current examples only makes it even more interesting ,appealing and stimulating for serious investors.
Reading articles of Arati krishnan , vidya bala from Hindu BL is what got me into PI when I found out that they started PI. I believe you have also written articles in BL and the quality shows up. Thank you.
Thanks 🙏. regards, Vidya
Excellent analysis. Wish he could have commented on Adani group of companies
Thank you sir. I thought of including, but corp. actions are still underway in most of the Cos.incl. equity raising, M&A, etc.
Your thought on mergers please? The case of HDFC bank comes to mind. CEO sells 95% of stake on the way out, Perhaps knew the move was not in the interest of retail investors. Playing out till date, with the bank selling piles of loans to boost liquidity.
Nothing wrong with mergers. But when it happens in a bull market, it generally happens when buyer is desperate to do it while seller gets a better price as well. Due to this, challenges often arise in delivering the desired RoCE/RoA/RoE
HDFC merger was a known/anticipated one for long. Management made investors un-necessarily excited by talking about a lot of merger synergies and all. They could have explored all those before merger itself as everything was under HDFC umbrella itself.
On the other hand, they underestimated the deposit mobilization challenge.
Otherwise, there wasn’t any question on the quality of business or asset quality or RoA or any other challenge w.r.t integration of these two entities. It was just the un-necessary excitement around merger that led to disappointment.
Interestingly, there was a HDFC owned entity Gruh Finance, which HDFC sold to Bandhan Bank and HDFC owned stake in Bandhan Bank till Sept 2023, it seems. Today, Bandhan’s M Cap is just as same as the M Cap of Gruh alone at the time of its merger with Bandhan. Had HDFC kept it separately or merged with HDFC bank itself, that could have turned to be more value accretive.
Thanks. Yes, I recall you addressed the deposit mobilisation challenges the bank is facing in your Feb 2024 article. The problem is that post merger, they’ve been fighting this battle to keep the CD ratio down, now aggressively selling their high rated loans since new deposits have become scarce, despite all the new branches. My grouse as an investor is that the stock has done nothing post merger, the recent rally perhaps a consequence of the MSCI rebalancing. Did the management not foresee these issues? I take your word that there are no asset quality issues, but why would an outgoing CEO so massively reduce his stake if he was confident of its immediate future aspects? He did not let the merger happen under his watch.
I have no guess on outgoing CEO’s stake sale as the value of his stake was Rs.842 crores. Nothing unusual about it, he may have other interests to pursue. He is now in the advisory board of PE firm Carlyle.
On the difference between an asset quality issue Vs the credit-deposit issue, the asset quality issue can pull down profits, eat capital and eventually dilute more equity
On the other hand, this credit-deposit issue obviously pulls down profit growth, but will not take it to negative, and is not equity dilutive (which is shareholder value destructive)
The moment the ratio is fixed, the bank can move back to its natural rate of growth. So, it is more of a period of NO Profit growth until the adjustment is complete
ok. One last thing. With the benefit of hindsight, do you think this merger was in the interest of retail investors?
Welcome your query sir,
The merger rumor was going around for a long time and only the timing was uncertain. So, it should only be a question of whether HDFC Bank investors got a fair deal. Considering the way it has pulled down HDFC Bank’s growth post-merger, it may remain a question mark.
But otherwise, these are largely integrated organizations in terms of business leadership, quality, culture, etc and hence not much to complain about. These are about to continue as well across banking, asset management, insurance, etc
Considering that the outcomes are “temporary overhangs” and not permanently “value destructive” (which many mergers result in), investors can time their fresh entry/ averaging and then look for long term compounding again
Hope this clarifies
Thank you
Very insightful. Thanks for the detailed note.
Comments are closed.