ESOP holders go for equities, avoid realty & IT stocks

Esop

ET Intelligence Group: For top Indian information technology professionals sitting on a bulging pile of employee stock options (ESOPs), a diversified portfolio of equities is fast emerging as the preferred investment tool over the traditional themes of real estate and information technology (IT) stocks.

Assets under management (AUM) of boutique portfolio management services (PMS) firms such as Trustline Holdings and Right Horizons, which primarily manage money of top IT executives,  have surged by 30-40% in the past two years. On average, such PMS firms reported over Rs 100 crore of incremental investment in each of the past two years from IT executives.

The minimum ticket size of investment at such PMS firms has surpassed Rs 25 lakh – a threshold that would attract largely the senior managerial cadre. The proceeds of the ESOPs are deployed in the PMS either after selling the entire ESOP holding or by offering these shares as collateral to PMS firms.

ESOP

 

Vikas Sharma, a Delhi-based regional manager at Cisco, said, “PMS has come up as a good alternative as it offers not only better return but also smooth exit in times of uncertainty.” Vikas has sold his sizeable ESOPs in Cisco Systems, listed in the US, to increase exposure in Indian equities. His equity exposure has increased to nearly 50% of savings from just over 20% two year ago.

Two major factors are driving senior IT professionals towards diversified financial assets — one, lower return from real estate, especially in IT hubs like NCR, Pune, and Bangalore; and two, the relative under performance of IT stocks compared with the benchmark indices.

Low liquidity and expectation of price cut have lowered sales in the residential property markets. Sobha and Prestige Estate, which are predominantly present in the IT hub of Bangalore, reported drop of 19% and 32%, respectively, in pre-sales for the December 2016 quarter. Until two years ago, nearly 80% of the total proceeds, on average, from selling ESOPs were deployed in real estate.

Aruna Giri, CEO of Trustline Holdings said, “We have received nearly Rs 60 crore of new money from ESOP proceeds.”

The AUM of the Trustline Holdings increased to Rs 220 crore from less than Rs 100 crore two years ago. Aruna Giri had earlier worked with Wipro BSE 0.64 % and quit IT in 2002.

Technology companies have issued ESOPs to the tune of 0.06-0.15% of their outstanding shares.

ESOPs issued by a sample of five companies including Infosys BSE 1.03 %, Wipro, HCL Technologies BSE 1.21 %, Mindtree, and Hexaware Technologies BSE 1.72 % are pegged at Rs . 5,000 crore. Wipro added 1.2 crore shares on account of ESOPs to its share capital in the past four years, according to company’s annual report, while Mindtree BSE 0.87 % added 15.8 lakh such shares.

Anil Rego, CEO at Right Horizon, a Bangalore-based PMS firm, said, “We are witnessing marked shift towards equity investment among the IT professionals due to the under performance of IT sector.”

The S&P BSE IT index gained 8%, while the Nifty 50 earned 43% return in the past three years. Rego runs a PMS book of around Rs 450 crore with nearly 15% of new funds coming from ESOPs. This shift towards equity is in line with the broader national trend.

In FY16, the share of equity was 2.8% of household savings, up from 2.2% three years ago.

By Ashutosh R Shyam

Related posts

Leave a Comment