Share Holding Pattern: Definition, Meaning and Analysis

The shareholding pattern provides an overview of a company, it’s a list that shows who owns the company and how much of it they own. In this article, let’s understand more about the shareholding pattern.

Key Highlights:

• Shareholding indicates the major shareholders of the company.
• Shareholding pattern to be disclosed by all the listed companies a per SEBI guidelines.

What is a Shareholding Pattern?

A shareholding pattern shows the company's ownership structure, including the distribution of its stock among different classes of shareholders, such as promoters, institutional investors, and individual investors. 

This pattern is a formal disclosure required of public companies and provides crucial insights into who controls the company, its potential stability, and future outlook, helping investors make informed decisions about whether it’s a good idea to invest their money in it.

Who Owns Shares in a Company?

There are different groups of people who can own shares. Let’s look at them one by one:

Promoters:

These are the individuals who founded the company, such as the founders or their family members. They typically own a significant portion of the company.

If promoters own a significant number of shares, it suggests that they have confidence in the company’s future. However, if they own too much, they may make all the decisions, which may not always be beneficial to others.

Public Investors:

These are regular people, like you and me, who buy shares in the company. They are called retail investors.

When many regular people own shares, it indicates that the company is well-received.

Institutional Investors:

These are large organisations, such as banks, mutual funds, or insurance companies, that purchase a significant number of shares.

Example: Imagine a large bank acquiring a significant stake in the company. They conduct extensive research before making a purchase, so if they own shares, it’s a good indication that the company might perform well.

There are two types:

Foreign Institutional Investors (FIIs): These are companies based in countries other than the United States.

Domestic Institutional Investors (DIIs): These are companies from the same country as the company

Employees or Others:

Sometimes, a company distributes shares to its employees or other designated groups. This doesn’t happen in every company, but when it does, it’s listed in the shareholding pattern.

Why Should You Care About the Shareholding Pattern?

You might wonder, “Why does it matter who owns the company?” Well, it’s like knowing who runs your favourite shop. If the owners are trustworthy and care about the shop, it’s likely to do well. Here’s why the shareholding pattern is important:

Shows Who Controls the Company:

If promoters own a big part, they make most of the decisions. This can be beneficial if they’re intelligent, but detrimental if they make selfish choices.

If many people or big organisations own shares, it means decisions are more balanced.

Tells You If the Company Is Trusted:

If big banks or foreign companies own shares, it’s a sign they think the company will grow. They only invest after carefully evaluating all the factors.

For example, if a famous bank buys shares in a company, it’s like a teacher giving a gold star to a student it means the company is doing something right.

Helps You Spot Problems:

If promoters are selling their shares, it may mean they no longer believe in the company. This is like the shop owner leaving the shop, it’s a warning sign.

However, sometimes promoters sell shares to raise money for growth, such as opening a new shop. So, you need to check why they’re selling.

Helps You Decide If You Should Invest:

Before investing in a company, you want to know if it’s a safe bet. The shareholding pattern is akin to a report card that indicates whether the company is strong and trusted by others.

How to Check a Shareholding Pattern?

Good news! You don’t need to be an expert to find this information. Companies must share their shareholding pattern every three months, and it’s available for free. Here’s how you can see it:

Company’s Website:

Go to the company’s official website. Look for a section called “Investors” or “Investor Relations.” You’ll find the shareholding pattern there, usually as a PDF file.

Stock Exchange Websites:

In India, companies list their shares on exchanges such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). Visit their websites, type the company’s name, and look for the shareholding pattern.

Financial Websites:

Websites like ClearTax also show shareholding patterns of listed stocks on the NSE & BSE. Just search for the company’s name, and you’ll find the details.

Simple Tips to Understand the Shareholding Pattern

Here are some easy things to consider when you are analysing a company's shareholding pattern,

Check Promoter Holding:

If promoters own 40–60% of the company, it’s usually a good sign. They care about the company but don’t control everything.

If they own more than 70%, they might make all decisions, which could be risky.

If they own very little (less than 20%), it may mean they don’t believe in the company.

Look at Big Investors:

If banks, mutual funds, or foreign companies own shares, it’s a good sign. They only invest in companies they think will grow.

Example: If a company has 20% shares owned by a big mutual fund, it’s like a famous chef saying the food at a restaurant is good.

Watch for Changes:

Compare the shareholding pattern for this quarter with that of the previous quarter. Did the promoters sell a large number of shares? Did big investors buy more? Changes can indicate if something significant is happening.

Example: If promoters sold 10% of their shares, what would be the reason? It could be a problem, or it could be for a good reason, like starting a new project.

Avoid Companies with Too Few Owners:

If one person or group owns almost all the shares, they can essentially do as they please. This might not be good for small investors.

A company with many owners (promoters, public, and institutions) is usually safer.

Real-Life Example to Make It Clear

Let’s say there’s a company called XYZ Foods Ltd. that makes snacks. Here’s what its shareholding pattern might look like:

• Promoters: 50% (the family that started the company owns half the shares).
• Public Investors: 30% (regular people like you and me).
• Institutional Investors: 20% (a big bank and a foreign company own this part).

What does this tell us?

• The promoters have a significant stake, so they are invested in the company’s success.
• Regular people like the company because they own 30%.
• Large investors, such as banks, trust the company, which is a positive sign.

Now, if you check the pattern next quarter and see the promoters sold 10% of their shares, you’d want to know why. If they want to start a new factory, that’s okay. But if they sold because they think the company will fail, you might not want to invest.

Factors To Consider Before Investing

Don’t Trust Only the Shareholding Pattern:

The shareholding pattern is important, but it’s not the only thing to check. You should also examine the company’s profits, debts, and performance compared to others.

Changes Aren’t Always Bad:

If promoters sell shares, it doesn’t always mean trouble. Sometimes they sell to raise money for growth. Check the reason before you worry.

Too Much Promoter Control:

If promoters own almost everything (about 80–90%), they might make decisions that benefit themselves rather than you.

Big Investors Leaving:

If banks or foreign investors sell their shares, it may indicate that they no longer trust the company. This is a red flag.

Why Companies Share This Information

In India, the government has a rule that all companies listed on stock exchanges (like BSE or NSE) must share their shareholding pattern every three months. This rule is established by the SEBI (Securities and Exchange Board of India) to ensure companies are honest and investors can trust them. The report must show:

• Who owns more than 1% of the shares?
• If promoters have borrowed money by promising their shares (called pledging).
• How many shares are owned by promoters, the public, and institutions?

This makes it easy for anyone to check and decide if they want to invest.

Things To Remember

• Look for companies where promoters own a good amount but not too much.
• Check if large investors, such as banks or mutual funds, are involved.
• Compare the pattern over time to spot changes.
• Use easy sources, such as the company’s website or the BSE/NSE, to find the report.

Investing is like planting a seed, you want to plant it in good soil. The shareholding pattern helps you determine if the company is a good investment for your money. Start small, learn as you go, and always check before you invest.

Conclusion

The shareholding pattern is like a map that shows who owns a company and the percentage of ownership they hold. It helps you understand whether the company is trustworthy, who controls it, and whether it’s a good place to invest your money. By checking this report, you can make smarter choices about investing, even if you’re new to it.