Whether you are an investor or trader, selecting a stock requires careful analysis of various parameters related to the company. Shareholding pattern is one of the key aspects to look at, before selecting the stock for long term investment or for trading.
In fact many market participants observe the shareholding pattern as keenly as the company’s fundamentals, financials, trading volumes, key management changes etc.
So, what is the Share holding pattern and why is it important?
Let us find out.
Simply put, the shareholding pattern represents share ownership in the company by different entities. These entities can be –
- Foreign Institutional Investors (FIIs),
- Domestic Institutional Investors (DIIs),
- High Networth Individuals or
- Retail investors
It shows the percentage breakup of share ownership of the company by these investors.
The table below is a sample of how a company’s shareholding could be distributed across these entities:
|Retail & others||11.79%|
Shareholding category distribution
The table below highlights some of the typical categories that can be seen under shareholding distribution:
|Foreign : |
Foreign individuals or NRIs
Other qualified foreign investors
|Non – Institutional |
Ohers (Clearing house etc)
Shareholding pattern is available on the company’s website, website of the stock exchanges and also on major financial portals. It is generally listed under ‘Investor Relations’ or ‘Investors’ category. On BSE/NSE, the name of the company can be entered into the search bar. The entire information and breakup will be available under ‘Shareholding Pattern’
Shareholders ‘own’ the company and can question the management over its decisions related to the business. Long term investors are those who stay with a company during its growth journey and their primary motive is to profit from its business. They can generate great wealth if the company does well.
Let us see how certain categories of shareholders impact or help in decision making :
High promoter stake
A promoter works for the best interest of the company and thus an increase in promoter stake is generally considered positive. Promoters can increase shareholding by way of open offer or buyback in anticipation of good growth in future.
In case the promoter is decreasing stake continuously, it can be taken as a warning sign. An Offer for Sale by the promoter, however, is not a worrying sign.
High FII stake
FIIs are generally seen as deploying money in stable, well researched companies.
They are considered to have the best analysts as well as an expert team of Fund Managers. FII backing for a company is generally considered a positive.
Mutual funds, banks and insurance companies
A significant stake by these large investors is a good sign as the company is considered to be in a long term growth trajectory.
Before picking up shares of a company, it is important to review the Shareholding pattern, for both traders as well as investors.
Some of the key Shareholding facts to look at, are discussed here :
- A significantly high promoter stake is generally not favorable from a management decision making perspective and thus a balanced, diverse shareholding pattern is considered better.
- A decrease in shareholding by promoters should not always be construed as negative. It may, in fact, signify acquisition or business expansion and thus can be positive for the long term future outlook of the company.
- Promoters selling stake through the open market might indicate something negative. Share Buyback increases promoter stake, but may not necessarily be positive for investors.
- Multiple changes in shareholding across quarters holds greater significance than just looking at the annual changes and should be scrutinized closely.
- Pledged shares or shares used as a collateral should be studied carefully for any risk associated with the company’s debt situation or promoters using the funds / reserves elsewhere.
- Diversified and balanced Shareholding pattern ensures that decisions are well thought of with the best interest of the company.
These are the guidelines laid out by SEBI that every listed company has to follow for its shareholding pattern:
- Shareholding Pattern is to be disclosed every quarter to the Stock exchange the company is listed on (NSE and BSE).
- As per public disclosure guidelines, the names of Shareholders holding more than 1% in the company should be disclosed within the last 21 days of each quarter.
- Companies should have non- promoter shareholding in addition to promoter and public shareholders.
- Names of shareholders who are persons acting in concert or collaboration, if available, should be disclosed separately.
It is a good practice to check the shareholding pattern of a company before making an investment decision. A diversified set of owners evokes greater interest and gives a sense of stability, balance and sound decision making by the management.
However, shareholding pattern in itself should not be the sole criteria for stock selection, rather it should be one of the many factors.
Though it is a good indicator of a promoter’s confidence, you should take into account other important parameters of stock evaluation like the companies’ profitability, earning ratios, debt levels, management commentary etc.
FII stake generally gives a positive outlook to a company’s share. However, sudden large selling by FIIs can be event based or due to holding limit breach as well.
Change in Shareholding pattern can be due to reasons like promoter raising money, business expansion, asset sale, foreign or domestic institutional Investors making changes to their portfolio.
There are two primary components of Shareholding pattern : Promoter shareholding and Public shareholding.
Shareholding pattern is public record and easily accessible. Anyone can fetch this information through the company’s website or from Stock Exchanges.