It is vital to understand the shareholding pattern meaning, as it is a great indicator. The Shareholding Pattern of a company is a requirement that discloses the way the company divides their ownership. It is mandatory to disclose this information for any public company and usually comprises of:

shareholding pattern meaning and analysis

Shareholding Pattern: Individual Shareholders

  • Individual Shareholders
  • Government Shareholders
  • Institutional Shareholders, and more

Along with this information, when a company decides to go public, it is also supposed to name the shareholders that hold more than 1% of the shares of that particular company. The company updates this information within the final 21 days of each quarter.

According to the 31st Regulation regarding the Listing of Companies, every company must abide by providing the shareholding pattern in the following way:

  1. Promoter and Promoter Group Holdings: Promoter holdings show the percentage of shares that the promoters of a company hold A Promoter is someone who has worked in the initial phase and towards the formation of the company.
  2. Public Holdings: Public holdings include those that are not promoters or organisations. These can be individuals who have a minimum of 1 share of the company.
  3. Non-Public or Non-Promoter Holdings: This could include companies that are invested in the company. This is because a the law treats companies as an individual.

Examples of Promoter Shareholding

The categorization of Promoter Shareholders are as follows:

Domestic Promoter Shareholders

  • Corporates
  • Individuals
  • The Government within the country
  • The Financial Institutions and Banks of a country

Foreign Promoter Shareholders

  • Corporates of a foreign country
  • NRIs or Individuals of another country that have a vested interest in the company
  • Outside Institutions

Examples of Public Shareholding

The categorization of Public Shareholders are as follows:

Institutional Shareholders

  • Financial Institutions and Banks
  • Foreign Institutional Investors (FIIs)
  • Mutual Fund and Insurance Companies
  • Government bodies

Non-Institutional Shareholders

  • Individuals
  • Corporate Investors
  • Foreign Custodians

What do you understand by shareholding pattern meaning of a company before investing?

Since the Shareholding Pattern of any company tells how much percentage of shares are held by each of the groups mentioned above, it can inform the investor in case there are any sorts of risks involved. For example, if the majority of shares are held by Foreign Individuals in a particular company, and the government plans to increase the tax on that particular group, it would create an unfavourable environment for those Foreign investors and they would most probably disinvest.

Promoter Shareholding Pattern Interpretation

One favourable sign of the Shareholding Pattern is if the promoters hold the majority stake. What this goes to display is that the promoters have the utmost confidence in their business and they are in it for the long run. Vice-versa, if the promoter holdings in a company are low, this is usually not a good sign. Somewhere in the middle is just right.

If the promoter shareholding is on a rise, it could be because the company is buying back shares from the public. This could be favourable for the shareholders because they can sell their shares at market value plus some predecided premium. This move shows added confidence from the promoters since they are willing to buy the shares back at a higher than market value price. Most of the time this could indicate some sort of expansion or a tie-up with another company that goes in the way of increasing business.

On the other hand, promoter shareholding falling is a negative sign. When this happens, the company sells their stake to the public at a lower than market value rate. Although this seems like a good deal for investors, this could be a bad sign in the long run since the promoters are not confident the public will purchase the shares at the current market price.

Institutional Shareholding Pattern Interpretation

If a significant amount of shares of a company are held by Institutions such as Banks, Mutual Fund houses and Insurance companies, it is a favourable sign. The reason is that these Institutions have access to greater resources and do great amounts of research before investing in any company.

Whereas, if institutions shy away from a particular company, it is not seen as a good sign and one must analyse further.

During their analysis, Investors must also look at changes in shareholding patterns over several quarters and apply the above-mentioned points. If a company is turning from an unfavourable to a favourable shareholding pattern, it is a good sign. Similarly, if the opposite happens, one must look closer as to what the reason might be and look to wait before investing. It is important to note that the shareholding pattern is not the deciding factor when investing in a company. Investors must educate themselves on all the topics of the Stock Market before making any investment decision.

How can one check the Shareholding Pattern of a company?

Since it is clear why one must know the Shareholding Pattern meaning, it is also important to know where to look for it. This information is generally available in the Annual Report of the company. Also, when the company announces quarterly results, one can be on the lookout for the same. Also one can look for this information on reputed websites such as Moneycontrol. These websites update their information constantly and create awareness through their Update publishing and research skills.

One can also check for the Shareholding Pattern on the official Stock Exchange websites such as the NSE and the BSE.

References:

Tawiah, Vincent, and Mudaheranwa Benjamin. “Who owns Indian Companies? A Decade of Shareholding Patterns Of Automobile And It Industry.” IOSR Journal of Business and Management 16.10 (2014): 1. https://www.academia.edu/download/35852957/Ownership_structures_of_Indian_Companies.pdf

KN, Kalaivani, and Latha BV. “AN ANALYTICAL STUDY ON SHAREHOLDING PATTERN AND PERFORMANCE OF INDIAN FIRMS.” IJRAR-International Journal of Research and Analytical Reviews (IJRAR) 5.4 (2018): 536-547. https://www.ijrar.org/papers/IJRAR1944286.pdf

Armour, John, et al. “The Basic governance structure of public corporations: the interests of shareholders as a class.” Working paper. Harvard Law School Cambridge (2017): 1. http://www.law.harvard.edu/programs/olin_center/papers/pdf/Kraakman_903.pdf

Haldar, Arunima, and SVD Nageswara Rao. “Empirical study on ownership structure and firm performance.” Indian Journal of Corporate Governance 4.2 (2011): 27-34. https://journals.sagepub.com/doi/abs/10.1177/0974686220110203


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