I have discussed this topic in the past, but since we get so many queries related to companies with sub 10% (sometimes even 5%) Promoter holding, it would be a Case in point to provide readers with some startling facts.
A few days back I came across an article on Economic times, which both shocked me and made me feel pity about naive and gullible individual investors. The article was on the number of companies that have been suspended by both BSE and NSE on grounds of listing norm violations. While researching companies for "Business Insight", "Value Pick" and "Instant Profit" recommendations, I come across a whole lot of stocks with some of them facing suspension. However I did not imagine that the number will be so large with more than 1000 companies facing suspension.
After reading the article, the one point that was further bolstered in my mind was that while choosing a company for investment, one cannot afford to ignore the shareholding pattern. We have been mentioning this time and again that please chose companies that have one characteristic as "Reasonably high promoter holding".
This is because as evident from the figures mentioned in the article almost 95% of the total market capitalization of the 876 suspended companies for which data is available, is public and belongs to individual investors. Promoters' holding in these firms is as low as 5%. Promoters of most of these companies sold their shares in the open market before de-listing and consequently their holdings came down below 5%, and in some cases, their stake went down to sub 1% levels. The value of promoters' holding was merely Rs 3,290 crore against the total m-cap of Rs 61,699 crore for those companies.
Now, that is why I mentioned gullible investors, because they are the ones who are suffering the most. The suspension has blocked money to the tune of Rs 58,000 crore of individual retail investors.
Coming back to my point on Shareholding pattern, It is very important that promoters hold a reasonable share in the equity of the company. Another good indicator is an increase in promoter holding, because they are at the helm of affairs of the company, and if they intend to increase their share, then there's a definite chance of them envisaging better days for the company and a consequent improvement in valuations.
High promoter holding is significant on account of the fact, that the involvement of their own money makes them active towards the operations of the company and thus they also comply with all the listing norms in order to avoid the suspension. In effect minority investors are better off with companies having high promoter holding. We make it a point that the companies selected for "Business Insight" and "Value Pick" should have reasonable level of promoter holding, and it is always complementary if we find them increasing their stake.
I feel it is important that investors should be updated regularly w.r.t companies that are falling short of compliance's, or are on the verge of facing suspension. This is because many of them are caught unawares when they find that the company that they have invested in has been suspended. Also there should be some provision of exit route even after the suspension, either by making Promoters accountable or some other requisite action. These steps will go a long way in protecting Investors rights.
To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
After reading the article, the one point that was further bolstered in my mind was that while choosing a company for investment, one cannot afford to ignore the shareholding pattern. We have been mentioning this time and again that please chose companies that have one characteristic as "Reasonably high promoter holding".
This is because as evident from the figures mentioned in the article almost 95% of the total market capitalization of the 876 suspended companies for which data is available, is public and belongs to individual investors. Promoters' holding in these firms is as low as 5%. Promoters of most of these companies sold their shares in the open market before de-listing and consequently their holdings came down below 5%, and in some cases, their stake went down to sub 1% levels. The value of promoters' holding was merely Rs 3,290 crore against the total m-cap of Rs 61,699 crore for those companies.
Now, that is why I mentioned gullible investors, because they are the ones who are suffering the most. The suspension has blocked money to the tune of Rs 58,000 crore of individual retail investors.
Coming back to my point on Shareholding pattern, It is very important that promoters hold a reasonable share in the equity of the company. Another good indicator is an increase in promoter holding, because they are at the helm of affairs of the company, and if they intend to increase their share, then there's a definite chance of them envisaging better days for the company and a consequent improvement in valuations.
High promoter holding is significant on account of the fact, that the involvement of their own money makes them active towards the operations of the company and thus they also comply with all the listing norms in order to avoid the suspension. In effect minority investors are better off with companies having high promoter holding. We make it a point that the companies selected for "Business Insight" and "Value Pick" should have reasonable level of promoter holding, and it is always complementary if we find them increasing their stake.
I feel it is important that investors should be updated regularly w.r.t companies that are falling short of compliance's, or are on the verge of facing suspension. This is because many of them are caught unawares when they find that the company that they have invested in has been suspended. Also there should be some provision of exit route even after the suspension, either by making Promoters accountable or some other requisite action. These steps will go a long way in protecting Investors rights.
To contact the Lead Associate on this story: Ekansh Mittal in Noida (New Delhi) at Ekansh@hbjcapital.com
