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This website is purely ACADEMIC in nature and NOT a stock market recommendation service or a tip provider. No live data or feeds are provided and all information is historic only. Information is provided for ease of understanding for the purpose of learning. Accuracy of definitions etc is not mantained. I am not a SEBI or IRDA registered.
Promoters and Shareholding Pattern
A company is generally owned by several stakeholders.
The Share Holding Pattern (SHP) is an official disclosure (document) about the ownership of the company.
The SHP will be disclosed every quarter to the stock exchanges.
Every listed companies in India is required to disclose their shareholding patterns to the stock exchanges.
It is a document which shows the holding pattern of promoters and non-promoters of the company.
It specifies if there is any pledging of shares by the promoters.
Pledging is like the promoter taking loan by giving their shares are a collateral.
The rules dictate that companies reveal the identities of all shareholders who own more than 1% of the shareholding of the company within 21 days of each quarter ending.
So, studying the pattern will help us if some people have increased / decreased their holding in the company.
There are some websites which track the changes in SHP in a more detailed manner.
For instance, AlphaIdeas.in and CapitalMind.in (Big Whales) study and document it in the form a quarterly report.
Along with SHP, when a large quantity of shares are transferred one to another, a disclose is sent to the exchange.
In particular, keep an eye on the following type of shareholders and what they did with their shares:
- Mutual Funds
- Insurance Companies
- Other DIIs
- Non Institutional Investors
- Others (Retail investors with more than 1% holding)
Who is a Promoter?
A Promoter is a person who starts a business or the company.
He is the person who solicits people to invest money into the company.
Because he is the person who started the company, he enjoys certain previlages.
Of course, he has certain responsibilities as well.
In most cases, he is the majority shareholder of the company.
He or his nominees will be executive director of the company and hence the company runs in his directions.
Substantial Acquisition of Shares Takeovers (SEBI) Regulation states that the promoter is:
(a) any person who is in control of the target company
(b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the listing agreement, whichever is later;
A strong promoter holding is a sign of the promoters confidence and interest in the company.
Several retail investors invest on news of promoter increasing their holding.
However, in some cases, certain listed companies has low or zero promoter holding.
HDFC, ITC, L&T, ICICI Bank, IDFC and Infosys are some examples where promoter holding is low or zero.
In some cases, the promoters sold their holdings for the greater good of the other share holders.
In some cases, the promoters might have pledged their shares to a financial institution who would have sold the shares in the open market.
In some cases the shares are transferred to an employee trust which becomes the largest shareholder.
And surprising some such companies are professionally run and are even leaders in their business.
SEBI regulations allow companies to have zero promoter holding according.
The SEBI regulations require a minimum 25 per cent of public shareholding but there is no legal requirement of minimum promoter group holding.
There are instances of companies with no promoter holding and the companies can be professionally managed.
This is very common in the US.
Company Law says that a company is managed by its board of directors.
If it has no identifiable promoter, the board, shareholders and the articles of association would be the guiding factors
In general, there is no rule in regard to de-classifying a promoter. So, SEBI takes decisions about de-classifying a promoter as a public shareholder on a case to case basis.
Rule #28: Understand promoter holding of the company before investing
When promoter holding in the company is high, it is a good sign.
This is because the promoter himself has confidence that the company will grow.
Low promoter holding or promoter holding that is pledged is often seen as a bad sign.
How much promoter holding is a good sign?
There is no specific number to this.
This number differs from industry to industry.
In general, prefer companies that have promoter holding as 50%+
Promoters of Fedders Lloyd Corporation Ltd hold 47 % stocks and Promoters not pledged any stock plus promoters hold 50 lakh convertible warrants when these 50 Lakh warrants fully convert in securities then promoters holding will be 54.41 %. I like increasing promoter holding, so I choose this stock for my home page recommendation.
Convertible securities are those securities that can be into convertible bonds or preferred stocks that pay regular interest and can be converted into shares of common stock.
So, what happened in this case is that...
1. The promoters gave the company some money in the form of a loan.
2. The company pays interest through out the tenure of the warrants
3. On maturity date, the promoters ask the company to convert the warrants into equity shares
4. This means, fresh equity shares will be created => leads to increased promoter holding
This is one of the several methods by which promoters protect their interests and increase their holding.
In this process, existing shareholders will not get anything. Only that the company will receive funds which if properly used can lead to improvements.
There are two official sources from where Share Holding Pattern of a company can be obtained.
1. Official Website of the company
Visit the official website of the company.
Look for a link called Investors or Investor Services
Look for a link called Share Holding Pattern.
Click on the link and then select the SHP for the period you want to get the details
2. Stock Exchange Website
Visit the stock exchange website say NSEIndia.com or BSEIndia.com
For example, on BSEIndia.com, search for the company for which you wish to access the SHP
Scroll to the middle of the page and to the right side, locate a link called SHP.
- For the list of companies in which you are invested, find out the promoter holding for each of them.
- Some stocks have zero promoter holding. Why?
- Promoter Pledging (Rule 29): What it is? And is it good or bad for the investors?
- Sales Growth of Company
- Debt-free / Low-debt / Virtually-debt free companies (Rule 10)
- High Beta Stocks (Rule 24)