Promoter holding is one of the most important terms that every investor or trader dealing in the stock market should know. It becomes essential if you are investing in small or mid-cap companies. But what is promoter holding, and why should you look and learn about it?
If you need to look around the profound concepts of the promoter holding in the share market, read this post. After doing detailed research, I came up with this piece of the post. So, once you read this post, you will have a complete understanding of the term “promoter holding”.
What is Promoter Holding?
Promoter holding refers to the percentage of the shares held by the promoters of the companies. Generally, these promoters hold an integral position in the company, and their decisions impact business activities. In simple words, promoters or promoters are the corporate entities with a significant role in the business. They can hold a significant portion of the company’s stakes and be part of upper-level executive positions.
These days, promoters are becoming significant or the largest investor in the share market. Therefore, you should know about their impact on the trading activities as an investor or trader.
Why Does Promoter Holding Increase?
The rise of promoter holding signifies that the promoters of the company are confident. And All major shareholders and promoters say well about the performance of the company in future. In this case, they can encourage the rest of the investors to invest in their shares to increase the prices of shares. They enjoy wealth, however, if the promoters are buying shares of their related companies. Then it shows the company will perform well, and they want to get the maximum benefit from it.
For example, Vedanta’s promoter Anil Agarwal started buying their companies shares from the market. He increased his holding at the end of December 2015. At that time, the share price was around Rs85. And after a significant decline in prices, currently, their shares are trading at Rs224. So, if promoters start buying their company’s shares, then as investors. You should know they are confident enough about the profit so you can also increase a significant number of shares.
Why Does Promoter Holding Decrease?
You should understand if the increase in holding reflects a positive signal. A decrease in promoters’ holding shows a negative signal about the performance of the respective company. In such scenarios, promoters do not feel confident about the company’s performance. They may also not have a sound strategy to grow the level of organization and increase profitability. Therefore, as per the available insights, promoters start declining their holdings.
However, if you are an investor of such a company, you should take further steps after some precautions. Because the decline in holdings always does not mean the future of the company will not be sound. The reasons being many companies may think to liquidate some of their holdings to invest or make some personal purchase to spread out their business connectivity.
For example, Jeff Bezos, Amazon’s founder, declined some of their holdings to found Blue Origin, the aerospace company. Therefore, you should check out the message of promoters decreasing their holdings of the company. If you find the reasons realistic and do not impact the company’s performance, you do not need to think much about these.
What is Low Promoter Holding?
Low promoter holding refers to the low percentage of shares held by promoters of the company.
Generally, low promoter holding is considered as a negative stock to do investment or trading for that. However, just by a first glance, you should not think the stock is not suitable for trading because it has very high DII and FII holdings then it is a good sign. Aside from this, a stock with low promoter holding but the number of promoter holding is increasing then it is also a good sign for the investors. Many front-line stocks have low promoter holdings, such as Axis Bank, HDFC, ICICI Bank, HDFC Bank, and Yes Bank. So, while dealing with such stocks, you should check out their DII and FII holdings. Companies like HDFC or Larsen and Toubro have 0% promoter holding but high DII and FII holdings.
How Can You Find Promoter Holding?
If you want to find promoter holdings of listed companies, you can check NSE and BSE websites. On both websites, you can check out the promoter holding of the companies just by entering the name of a particular company in the search tab. Once you search the term, a cascade list will appear where you need to search for a shareholding pattern. While doing this, you should also check out the pledget percentage of the holdings. You can analyze whether the promoter’s holding has been used for a loan and another borrowing. If he fails to make payment, the lender can sell these shares in the open market. The control of the promoter will be reduced.
Promoter holding refers to the percentage of the shares held by the company’s promoters, and they hold a significant position in the company. They are also one of the largest and significant investors; therefore, while making an investment decision, you also need to look for the promoter holding in the company. Moreover, you must look for the decrease and increase in promoter holding because if the promoter holding increases, the prices of the stocks will increase. If the promoter holding decreases, then prices of stocks will fall and give a negative sign. Thus, it would help if you also analyzed these trends before investing in any company listed in NSE and BSE.
So, I hope you have understood what promoters are holding in the share market and can make better investment decisions. If you want to keep learning such excellent posts related to the share market, stay tuned with us and check another similar post. I also hope you will love to help support us by sharing this post with your friends interested in the share market.