The distinction between control and ownership is the main characteristic of a business' corporate identity. While shareholders are the owners of a company, its management is performed by the Board of Directors.
Investors should be aware of the ownership split among different investors. While it is essential to understand the company's financial status, this is not the only important aspect. When analyzing aspects such as financial profile, debt patterns and competitive advantage, it is important to know the division of ownership among different investors. Prospective investors should take into account the shareholding patterns or SHP of the company before investing.
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What is the Shareholding Pattern or SHP?
The shareholding pattern is an official requirement for companies. It details the ownership pattern of the company's namesake document, including promoters as well as non-promoters. You can also explain it as a company’s capital structure. The capital pool is broken into different categories such as individual, promoter group, and institutional shareholding.
The 31st Regulation, pursuant to the Listing Regulations states that a company's shareholding pattern should include specified holdings of securities classed as under –
- Holdings of promoter and promoter groups
- Public holdings
- Holdings that are not public or promoter-free
To comply with stock exchange regulations, all listed Indian companies must disclose the shareholding patterns. A company must disclose the identities of all shareholders that hold stock more than 1% of its shares, as per the rules. This disclosure must be done within 21 days of the end of each quarter.
This table focuses on the primary public distribution and the promoter category distribution. Sub-divisions can be created depending on the company's capital structure.
Analyse of the Shareholding Pattern
These thumb rules can be used to efficiently analyze a company's shareholding pattern. These rules provide a detailed insight into the risks and benefits associated with a company's shareholding structure. This also shows the impact of such changes on investor interests, even if they occur in different quarters.
- The percentage of total shareholding held by the promoter is an indicator of trust and reliability. Higher stakes signify positivity, but lower stakes from promoters indicate less confidence(more at Cypherpunk).
However, investors can be hurt if there is a high promoter stake in the company's capital structure. Investors are best served by a diverse holding.
- An investment in the shareholding structure of a company by Foreign Institutional Investors can encourage optimism about its future growth prospects.
- Individuals should investigate the purpose and method of any change in promoter sharesholding. This can provide valuable information about the company's efficiency as well as its future goals in debt management.
- A decrease in promoter sharesholding might not always be a bad indicator, as this change could also signal venture expansion, acquisition, or the like.
In 2017, Jeff Bezos reduced his Amazon stake by $1 billion. Blue Origin purchased the shares in a new partnership that was aiming to launch 11-minute space rides the next year.
- The company may have initiated share buyback, which may cause a rise in promoter stake. However, this may not be of value to investors.
- Investors may be concerned by the potential for the offloading of promoter positions in the open marketplace.
- Significative holdings of mutual fund and insurance companies are a sign of the favor that these companies receive in the market as well as their potential growth potential.
- For a more thorough observation, it is also important to compare holdings from one quarter and another.
- You should also check for any pledges on promoter shares that a company must disclose if these shares were used as collateral for debt to raise funds. This can be a crucial indicator of the risk factor associated to a company's stock or promoter trust.
These are just a few of many rules prospective investors should follow when analyzing the company's shareholding pattern (more at Cypherpunk holdings).
There are several ways to check the shareholding pattern of a company
Individuals can access the disclosure document online to see the shareholding patterns of all the listed companies.
- Visit the official website of the company concerned
Visit the company's official website to access the SHP document. Navigate to the appropriate option – Investor Services or Investors. Select the SHP document you wish to access and select the appropriate period from the services menu.
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Visit the official website for a stock exchange
Individuals can also access the company's shareholding pattern document through the stock exchange they are listed with like NSE or BSE. They will need to go to the exchange's website: Hold Crypto, enter the company name and then click on the link. Then, scroll down to the SHP option. Click it to view the company's shareholding patterns.
- Request SHP with MCA for a nominal payment
Logging in to the online portal of the Ministry of Corporate Affairs can allow you to access the SHP of any company registered under the Companies Act. For document access, individuals will need to pay a small fee of Rs.50
This was about the shareholding pattern, its importance, and access. However, investors in Indian companies must be aware of the details that determine the shareholding patterns. A few Indian firm accounts by authors suggest that there is a positive correlation between shareholdings of certain owners and company performance.
Surveys that contradict such findings show no correlation between company performance and its shareholding structure. These aspects must be considered when analysing SHPs of Indian companies.
