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Northgate – Sustained Insider Selling

Northgate technologies is an IT play that does social networking and international voice calling software and hardware. They own BharatStudent.com (a social networking portal), Globe7, a software that has voice dialling features and Axill, an online ad intermediary.

A year or so back, there were a number of posts of how this was the next big thing and how Northgate would take the world by fire and become the next youtube. I had this chat session with a person advertising the company asking him – so why is Yogesh Patel, the COO, selling all his shares? And there was no answer.

Turns out Mr. Patel (or at least, someone named Yogesh Patel, who sits on the board as an “independent director” – looks to me like the same person) has continuously been selling shares nearly every month, 10,000 at a time.

And so have other insiders, as the BSE announcement archives will tell you.

While the company had a 1:1 bonus last August, the stock price has shown no signs of being very excited. From a high of (an adjusted price of) Rs. 760, the stock is now near 52 week lows – at about 290.

And insiders are still selling. Patel sold another 30K shares on 14 August 2008. Sure, one can’t predict much using insider selling – but I’ve now seen a pattern in two other stocks. ICICI Bank and FirstSource.

Insider sales can be misleading when insiders sell to generate cash. But sustained selling, or selling a large chunk of one’s stake has to be viewed with caution. No?