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The shareholding pattern gives one an idea of how the shares of a company are distributed across different entities. Shareholding patterns are significant for trading because they give traders an insight into a company’s financial health. The shareholding pattern refers to the division of shares which haven’t been put on the stock market.
Shareholding patterns represent the share ownership pattern of companies. For example, it shows how different investors have invested in the firm’s shares. It also shows the shareholding percentage across different classes of investors.
Listed companies must publish a statement of their shareholding pattern for every quarter. Current and potential investors may access the published reports to assess the firm’s capital structure and make vital investment decisions.
A company’s shareholding pattern is divided into two primary components:
Promoter shareholding is the percentage of shares owned by the company’s promoters. The promoters are the company’s founders, who hold a majority stake in the company’s capital. They occupy many seats on the company’s management committee. Moreover, the owners’ relatives who own company shares fall under the promoters group.
The proportion of shares not held by the promoters but issued to institutional and retail investors falls under public shareholding.
Public shareholding constitutes institutional shareholding by financial bodies. It could be financial institutions, mutual funds, banks, insurance companies, Foreign Institutional Investors (FIIs), Foreign Direct Investors (FDIs) and the common public.
If retail investors subscribe to the company’s shares, they fall under the public shareholding category. Moreover, the company must disclose if any individual entity holds more than 1% of the public shareholdings.
You can easily find a company’s shareholding pattern from the company’s website, the stock exchanges such as NSE/BSE, and financial websites like Business Standard and Moneycontrol.
If promoters hold a sizeable portion of a company’s stock, consider this a favourable sign. It means promoters assume significant risks by investing in their company as they believe in the firm’s profitability.
Look for the shareholder’s pattern, which reveals investments by Foreign Institutional Investors (FIIs). If FIIs believe in the company, it is a good sign as such firms may generate attractive returns.
It would help if you looked out for companies with very high promoter stakes. Concentrated stakes mean promoters have the right to make vital decisions that might hurt investors’ interests. Look for a diversified shareholding pattern instead of a concentrated promoter’s stake in the firm.
It would help if you compared the shareholding pattern across multiple quarters to spot significant changes. If the promoter’s shareholding pattern keeps changing, you must find out why. If promoters are exiting their stake regularly, it may signify a lack of faith in the company’s business.
The company’s shareholders’ pattern is a public record you can assess. You get an idea of how the company has raised money for its operations. It also helps one gauge the company’s profitability to make proper investment decisions before investing.