All you need to know about shareholding pattern and how to analyse it

A company’s shareholding pattern reflects the structure of a company's share ownership. It displays, for instance, how various investors have purchased company shares. Additionally, it displays the percentage of shares held by various investor types.

This information helps traders gauge the financial condition of a company.

Every quarter, listed firms are required to disclose their shareholding pattern. They must also disclose the identity of entities that hold over 1% of their shares. The reports are available for current and potential shareholders to review and evaluate the capital structure of the company and make investment decisions.

Difference between domestic & foreign shareholding pattern

Every country has different rules about disclosing the distribution of shareholding patterns. In India, the following are the domestic shareholding patterns for promoter shareholding: 

• Government
• Corporate
• Banks and financial institutions
• Individuals

The foreign shareholding pattern for promoter shareholding looks like this:

• Institutions
• Corporates
• Qualified foreign investors
• NRIs 

Ways to check shareholding pattern

You may simply check the shareholding pattern of any corporation since it is a publicly available record. The shareholding pattern can be checked in three different ways. These are:

●  The description of the shareholding pattern can be found under one of the sections on the company's website. It is also included in the income statement reports. However, the shareholding pattern is also most likely to change frequently throughout the year.

●  Visit the stock exchange's website where the firm is listed to see its shareholding pattern. The BSE and NSE websites would provide a link to the listed companies' shareholding pattern information.

●  To view a company's shareholding structure, go to the Ministry of Corporate Affairs' official website. 

General guidelines for evaluating the shareholding pattern

A company's shareholding structure can be accessed, but if you don't know how to interpret it, it will only appear as a statement with names and numbers. Therefore, applying the following thumb rules will help you get key insights on how to analyze a company's shareholding structure:

A high promoter shareholding is advantageous:

It is a positive sign if a company's promoters own a sizable percentage of its stock. It demonstrates that the company's supporters are taking the most significant financial risks and have faith in the business's ability to be profitable.

High FII is also advantageous:

When foreign institutional investors invest a significant amount of money in a company's shares, it indicates that they believe the company will produce profitable returns.

The value of diversification:

Companies with a very high promoter holding have to be avoided. This is because promoters with a concentrated shareholding have the freedom to make crucial decisions that could harm other investors. Therefore, a diverse shareholding is preferable.

Assessment of the ownership pattern's change:

You should analyze the shareholding distribution over several quarters to identify significant changes. Find out why the pattern is changing if it is. If the promoters or foreign investors are selling their shares, it can be a sign that they no longer have faith in the company, which should raise a warning sign for you as an investor. The company is a good investment for you if promoters or other entities have raised their investment.

Conclusion

Before investing in a company, one must research the promoter shareholder's profile. Make sure promoters don't own a substantial portion of the business. If not, chances are promoters will make the majority of important business decisions alone, which may be bad for retail investors' interests. Verify whether insurance firms and mutual funds own a sizable portion of the business. As these are substantial investors, it is a good indicator. 

FAQs

Q. What is a shareholding pattern?

The shareholding pattern of a company is a formal disclosure that contains information regarding its ownership pattern, including promoters and non-promoters.

Q. How do you examine the shareholding structure of a company?

Visit the stock exchange's website to see where the company is listed. You might get the shareholding pattern information of the listed companies by clicking on the link provided on the website. You can also view a company's shareholding structure on the company's official website.

Q. What distinguishes a shareholder from a promoter?

The promoters sign the Memorandum of Association at the time of incorporation. The term "shareholder," on the other hand, is quite specific and applies to anyone who owns the company’s shares.