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S H Kelkar and Company Limited, together with its subsidiaries, manufactures and supplies fragrances, flavors, and aroma ingredients in India. S H Kelkar is one of India’s large-cap stocks that saw some insider selling over the past three months, with insiders divesting from more than 3.6 million shares during this period. It is widely considered that insider selling stock in their own companies is potentially a bearish signal. A two-decade research published in The MIT Press (1998) showed that stocks following insider selling declined 2.7% relative to the market. But these signals may not be sufficient to gain confidence on whether to divest. I’ve assessed two potential reasons behind the insiders’ latest motivation to sell their shares.
View our latest analysis for S H Kelkar
Who Are Selling Their Shares?
There were more S H Kelkar insiders that have sold shares than those that have bought. In total, individual insiders own over 52.18 million shares in the business, which makes up around 36.34% of total shares outstanding.
. Entities that sold on the open market in the last three months were Knp Industries Pte Ltd and Keva Aromatics Private Limited. Although these are institutional investors, rather than company executives or board members, the insights these investors gain from direct access to management as large investors would make them better-informed than the average retail investor. In this specific instance, I would classify these investors as company insiders.
Is Future Growth Outlook As Bearish?
At first glance, analysts’ earnings expectations of 83.1% over the next three years illustrates a spectacular outlook for the business. However, this is inconsistent with the signal company insiders are sending with their net selling activity.
Digging deeper into the line items, S H Kelkar is believed to experience a strong double-digit revenue growth next year, which appears to flow through to larger earnings growth expectations. This is potentially an outcome of successful growth initiatives in place and strong cost controls, leading to sustainable operations.
Yet insiders’ selling action seem to contradict this optimistic earnings outlook which means they may perceive things differently to the market. They may deem the high growth is not sustainable or positive sentiment has been overly factored into the stock price.
Did Insiders Sell On Share Price Volatility?
An alternative reason for recent trades could be insiders taking advantage of the share price volatility. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook.