Last Updated on Feb 10, 2022 by Ayushi Mishra
When a company issues shares to raise funds, different types of investors invest in such shares. It, therefore, becomes necessary to check which type of investors have invested in a company’s shares and how much stake do they have in the company. This is where the shareholding pattern comes into the picture.
This article covers:
- What is the shareholding pattern?
- Components of the shareholding pattern
- SEBI rules for shareholding pattern
- How to check the shareholding pattern of a company?
- Understanding the shareholding pattern – the thumb rules
What is the shareholding pattern?
The shareholding pattern represents the share ownership pattern of a company. It details the manner in which different investors have invested in the company’s shares. It also gives the percentage of shareholding by the different classes of investors.
Every listed company is required to publish a statement of its shareholding pattern every quarter. This published statement can, then, be accessed by existing and potential investors to assess the company’s capital structure to make investment decisions.
Components of the shareholding pattern
The shareholding pattern of a company is divided into two main components:
1. Promoter shareholding
Promoter shareholding means the percentage of shares owned by the promoters of the company. The promoters are the founders of the company who own a majority stake in the company’s capital. They also have major participation in the Board of Directors of the company and are tasked with making key managerial decisions.
2. Public shareholding
The proportion of shares not held by the promoters but issued to retail and institutional investors fall under this category. Public shareholding, in other words, means the ownership of shares by individuals or entities that are not the promoters. Public shareholders can be:
- Mutual funds
- Banks or financial institutions
- Insurance companies
- Foreign Institutional Investors or FII
- Foreign Direct Investors or FDI
- The common public
So, when you subscribe to the shares of a company, you fall under the public shareholding category.
SEBI rules for shareholding pattern
The Securities and Exchange Board of India (SEBI) has listed various rules regarding the shareholding pattern of listed companies. Besides issuing a statement containing the shareholding pattern every quarter, the following conditions should be fulfilled by companies:
- If any individual or entity holds more than a 1% stake in the company, the details of such an investor should be disclosed by the company. The disclosure should be done in the last 21 days of every quarter
- Besides promoter and public shareholding, a company can also have a non-public or non-promoter shareholding
- The disclosure of the shareholding pattern should be made to the stock exchange on which the company is listed
- If the promoters pledge their shares to raise funds, the shareholding pattern should disclose the details of such pledging by the promoters and the proportion of shares pledged as collateral
How to check the shareholding pattern of a company?
Since the shareholding pattern is a published record, you can easily check the pattern of any company that you want to. There are three ways of checking the shareholding pattern. They are as follows:
- Visit the official website of the company and find the statement of the shareholding pattern under one of the listed tabs. It is also published in the annual reports of the company, but the shareholding pattern is likely to change many times within a year too
- Visit the website of the stock exchange on which the company is listed. The website would give you the link to access the shareholding pattern details of the listed companies
- You can also visit the official website of the Ministry of Corporate Affairs to check the shareholding pattern of a company. This website, however, might charge a nominal fee to allow you to access the details
Understanding the shareholding pattern – the thumb rules
You can access the shareholding pattern of a company but if you don’t know how to read it, it would be just a statement containing names and numbers. The thumb rules, therefore, give you important pointers using which you can analyse the shareholding pattern of a company. These thumb rules are as follows:
1. A high stakeholding by the promoters is favourable
If the promoters hold a considerable portion of the stock of a company, it is a good sign. It shows that the promoters are taking the biggest risks in investing in the company and they believe in the company’s profitability.
2. A high FII is also favourable
If the shareholding pattern reveals a high investment by foreign institutional investors, it is a positive sign as it shows that foreign investors trust the company to generate attractive returns.
3. Diversification is important
Companies with very high promoter stakes should be viewed with caution. This is because a concentrated stake gives promoters the right to make important decisions at their discretion that might hurt other investors. As such, a diversified shareholding is a better alternative.
4. Change in the shareholding pattern should be assessed
You should compare the shareholding pattern of multiple quarters to spot considerable changes. If the pattern is changing, find out why. If the promoters or foreign investors are divesting, it might indicate a loss of confidence in the company which is a red flag for you as an investor. A consistent decrease in the proportion of promoter shareholding or offloading by promoters is also a cause of concern. On the other hand, increased investment by promoters or other entities is a positive sign for you to invest in the company.
The shareholding pattern of a company is an indicator of the structure of its capital ownership. It is a public record that you can access to study how the company has raised funds for operations and growth. The shareholding pattern can also give you meaningful insights into the company’s profitability so that you can make the right investment decisions about investing in the company. So, read the shareholding pattern using the above-mentioned thumb rules, compare the patterns of different quarters to check for any major changes and then invest in the company.