A business’s corporate identity is mainly characterised by the distinction between its control and ownership. Thus, while the shareholders of a company are its owners, the duty of its management is vested in the appointed Board of Directors, responsible for undertaking key business decisions.
From an investor’s perspective, while knowing the company’s financial standing is important, it is equally crucial to know the division of ownership among various investors. Thus, when analysing aspects like financial profile, debt patterns, competitive advantage, etc. prospective investors should also take note of the company’s shareholding pattern or SHP before parking their funds in it.
In this article
A shareholding pattern refers to an official disclosure requirement of companies, whereby the namesake document details about its ownership pattern, comprising of both promoters and non-promoters. It can also be explained as a company’s capital structure, wherein the capital pool is divided into various categories of shareholding, like promoter group shareholding, individual shareholding, institutional shareholding, government holding, NRI holding, etc.
As per the 31st Regulation pursuant to the Listing Regulations, the shareholding pattern of a company should comprise specified holdings of securities classified as under –
- Promoter and promoter group holdings
- Public holdings
- Non-public or non-promoter holdings
All listed Indian companies must disclose their shareholding pattern to concerned stock exchanges. As per the rules, a company must also disclose the identity of all shareholders who hold more than 1% of its shares. Such disclosure must be made within the last 21 days of each quarter.
The following table emphasises on the primary public and promoter category distribution, which can further have sub-divisions depending on the company’s capital structure.
|Shareholding Type||Shareholder Category Distribution|
|Promoter Shareholding||Domestic –||Foreign –|
|Public Shareholding||Institutional –||Non-institutional –|
The following thumb rules help in efficient shareholding pattern analysis of any given company. These rules lend an in-depth insight into the beneficial possibilities and risk factors that accompany an entity’s shareholding structure. It also indicates the impacts of such changes on investor interest even from one quarter to another.
- Promoter’s stake in total shareholding is a critical indicator of a company’s confidence and reliability. While higher stakes indicate positivity, lower promoter stakes indicate reduced confidence.
Nevertheless, a very high promoter stake in a company’s capital structure is also not favourable, while a very low stake can hurt investors’ interest. A diversified holding is thus considered good for investors.
- A moderate to high stake of Foreign Institutional Investors in a company’s shareholding structure fosters optimism among investors regarding its future growth prospects.
- For any change in promoter shareholding, individuals should look for the method and purpose of such a changing pattern. It can lend valuable insight into the company’s efficiency and future goals regarding debt management.
- A decrease in promoter shareholding may not always be a negative indicator as such a change might also signify venture expansion, acquisition, etc.
For instance, the year 2017 saw Jeff Bezos reducing his stake at Amazon by a whopping $1 Billion. The action was, however, initiated as a result of a new partnership, whereby the shares were purchased by Blue Origin that aimed to introduce space rides of 11 minutes the following year.
- A rise in promoter stake may also be a result of share buyback initiated by the company and may not prove valuable for investors.
- Offloading of promoter holdings in the open market can be a warning and an unwelcome sign for investors.
- Significant holdings from insurance and mutual fund companies indicate the favour that such company’s stock receives in the market and its perceived potential for growth.
- One must also compare the changes in holding from one quarter to another for a more detailed observation instead of changes over a financial year.
- Also, check for any pledge on promoter shareholding that a company is required to disclose if such shares have been utilised as debt collateral to raise funds. It can be a critical indicator of the risk factor associated with a company’s stock and promoter trust.
These are but just a few of the many thumb rules that prospective investors should observe when undertaking the shareholding pattern analysis of a company.
As the shareholding pattern of all listed companies is freely available online, individuals can gain access to the disclosure document through either of the following ways.
- Visit the concerned company’s official website
To access a company’s SHP through its official website, visit the site and navigate to either of the options – ‘Investor Services’ or ‘Investors’. Under the services, select the SHP document and choose the desired period to access it.
- Check from the official website of a stock exchange
Individuals can also access the shareholding pattern document of a company through the concerned stock exchange it is listed with, like BSE or NSE. To do so, they need to visit the exchange’s website and enter the company’s name. Next, they can scroll to find the SHP option and open it to check the shareholding pattern of the concerned company.
- Request for SHP with MCA against nominal payment
One can also access the SHP of any entity registered under the Companies Act by logging in to the digital portal of the Ministry of Corporate Affairs (MCA). Individuals, however, need to make a nominal payment of Rs.50 for document access.
While this was all about the pattern of shareholding, its importance and access, individuals must assess specifics that define the shareholding pattern in Indian companies while investing in one. For example, a few author accounts regarding Indian firms suggest a positive correlation between shareholdings by specific categories of owners and company performance.
However, surveys contradicting such findings also claim no such relation of company performance with its concentrated shareholding pattern in the long run. One must, therefore, consider these aspects of Indian companies when analysing their SHP.