>MARKET STRATEGY (CLSA)

What are insiders doing?
Insider sales hit a nine-month high in May as markets recovered and June will also be a month of high insider selling. Interestingly insider buying which had tapered off after Sept-08 revived partly in Jan-09 and Mar-09. The complete lack of insider selling over Sept-08 and April-09 is likely reflective of the poor demand/ liquidity for equities as the credit crunch hit the markets very badly. To quote from our Regional Watchdog report: “Stocks that have outperformed but seen large insider sales could face more downside potential if markets correct.” Bharti, DLF, L&T, ITC, Kotak Bank, Shriram Transport, HDFC and HDFC Bank are among the companies
that have seen relatively large insider selling in Apr-09 to Jun-09.

Record insider selling in the region…
■ Our Regional Watchdog report covers trades by directors/ significant shareholders and buybacks above US$0.1m for companies with market cap of US$1bn or more.
■ Insider selling in the region accelerated in May as market rally continued, hitting record US$2.2bn (a 4x increase from April) – the highest since Sept-08.
■ The spike in sales betrays a likely lack of confidence in the current rally.

…Similar trend in India
■ The Indian data shows that insider buying was strong during Sept-08 and then again in Jan-09 and Mar-09.
■ Insider selling which was virtually absent during Sept-08 to Apr-09, has significantly picked up in May-09 and Jun-09.
■ Even removing the big deals in May – the selling by promoters of DLF and Suzlon the insider selling in May and Jun will be the highest in the last ten-months.

Interesting buying and selling by insiders
■ We looked at the buying and selling by insiders in the top 25 companies by market cap (excluding PSUs) and a few other companies where notable insider transactions were seen.
■ Stocks that have seen a notable increase in insider selling in recent weeks/ months are Bharti, DLF, L&T, ITC, Kotak Bank, Shriram Transport, HDFC and HDFC Bank.
■ ICICI Bank, which had witnessed large selling by insiders in the Jan-08 to Jul-08 period, has seen some buying in early May after a long period of lull. Jindal Steel Power has seen buying in Nov ’08 and in Apr ’09.
■ It is not just insider selling that increased. Corporate India’s equity raising plans suggest that equity supply in FY10 can exceed that in any year other than FY08.

See inside for charts and tables and for details refer to Krishnan’s strategy note

To see full report: MARKET STRATEGY