Why is shareholding pattern is important in fundamental analysis?

Friends, when you buy any stock, you have to analyze the entire fundamentals of that stock.From fundamentals analysis, you know many important things about the company.

Why is shareholding pattern is important?
share holding pattern is important

The most important part of fundamental analysis is the shareholding pattern.also we learn shareholding pattern format for pvt ltd company.

In this article we learn more shareholding pattern meaning in details.

To understand the shareholding pattern, let us take the example of sterlite technologies limited india.

The stock price of the sterlite technologies pvt limited companies was between Rs 350-400 between September-October 2018.

sterlite technologies chart
Sterlite technologies chart

After that, the stock fell from Rs. 350-400 to 80-100 Rs.

And the most important thing about this decline is that the company had a profit of Rs 201 crore in 2017.

Again in 2018, the profit increased to Rs 334 crore.

And again in 2019, the profit further increased to Rs 563 crore.

Lets think : why is the stock price so low even though the company has been profitable for 3 years in a row?

stellite technologies net profit
Sterlite technologies net profit

If you look at the financial statement, it did not show such a factor, what would be the reason for the fall in the stock price?

When we look at shareholding pattern, we should say, why this stock price has gone down?

When we look at the shareholding pattern of any company.we get the important data about this specific company or stock.

Who are the stock partners in that company?

The shareholding pattern generally includes promoters and public investors.

promoters : mutual funds, FII-DII instituation, public investors and other investors are included in promoter categories.

To understand stock holding patterns, you must first know about stock ownership.

This category of promoters includes the company’s founder, company owner, company director, and CEO.

Public shareholding

There are 2 types of public shareholding.
In which the first public investor and the second instituational investor.

The public investor

It consists mainly of individual high risk investors and retail investors.

Institutional Investor

Some domestic and some foreign financial institution’s invest in this.

DII Domestic Institutions mainly include banks, insurance companies, NBFCs.

FIIs include foreign hedge funds, foreign banks, foreign financial institutions etc.

Fii’s investment is considered good for the stock and also for the economy of that country.

Let us now look at the reason why the stock price of Sterlite Technologies pvt limited fell.

The shareholding pattern of the Sterlite technologies company seems to be the first.

The promoters of Sterlite have taken loans by pledge their shareholding security.

We all know the simple rules of debt, if you want a loan of even Rs 100, you have to pledge Rs 500 infront.

Something similar happened in the case of Sterlite technologies pvt limited company, the promoters of the company took out a loan by pledge all their shares.

This thing to a decline in investor confidence in the stock growing more.

As a result, DII and FII start to sold their holdings.

Note : When investing in stocks any stock, you need to study the share holding pattern with thinking of profit and loss.

What to look for when looking at a shareholding pattern?

Any company can have one or more owners.Promoters can be individual Or one company can also be promoter of another company.

How much have stake do the promoters ?

  • It’s important part of stock company.
  • The higher the shareholders promoters, the more positive direction in this stock.
  • According to SEBI (stock exchange board of india) , the holding of promoters should be at least 75% of the all stock.
  • The promoter holding of a new company can goes up to 75%.
  • Some companies may have promoters holding 0%.
  • Because a company like SBI.SBI does not have an specific owner.This type company manage by professionals managing group.

There is another important part : Pledge as % of promoters shares

  • Check regular promoters when borrowing by pledge their own stock holdings in the company.
  • Loans drawn in this way are considered negative direction for stock according to the stock fundamentle system.
  • Also, have there has been any changes in the holding of promoters in the last few years? This should be checked.
  • If there is no change in the promoter stock holding, it is called stock neutral direction.
  • If there is an increase in promoter holding, this is positive direction for the stock.
  • If the sale is made in a promoter holding, it is called stock negative direction.

DII & FII : These is mainly include banks, insurance companies, NBFCs.

DII’s investment is considered a positive Direction for the stock.

FIIs include foreign hedge funds, foreign banks, foreign financial institutions etc.

FII and DII investments are considered good for the stock.It is also considered a good direction for stocks.

Also, in countries where FII investment is high, it is considered a good thing for the economic condition.

Where to find for Shareholding patterns?

Share holding patterns can be viewed on any financial website like Stock analysis and screening tool for investors in India.

We can also see the shareholding pattern of stocks in India on NSE shareholding pattern & BSE Shareholding pattern , Moneycontrol.

I hope you understand Why is shareholding pattern is important in fundamental analysis?

If you have any questions about the article or any queries regarding personal finance then ask in comments section.

Leave a Comment