Promoter Shareholding: What Does It Signify For The Investors?

Promoter shareholding serves as an important starting point for stock analysis. Advait Dharmadhikari finds out which companies have seen a change in promoter shareholding over the last four quarters and how this information can be used to make investment decisions.

- Advait Dharmadhikari

Investors are always looking for stock specific triggers that they think will take their investments higher. Investors don their analyst hats and evaluate several metrics and ratios to gain insight into the future of the company. The patterns of promoter shareholding are a useful way to understand what the entrepreneurs at the helm of our favorite stocks think of their own businesses. The promoters of any company are usually the analysts with the deepest understanding of their businesses.

It is often believed that increasing promoter stake is a vote of confidence about the future prospects of the company. Promoters are often the largest shareholders in their companies and they are the driving force behind businesses. Hence, it is important to keep an eye on promoter shareholding patterns. However, while increasing promoter holdings is a good sign for individual investors, it should be used as a useful starting point for further analysis. It cannot be the sole criteria for investment decisions.

As seen in the below table, only four companies recorded an increase in their shareholding, namely, HDFC Bank, Tata Motors, Tata Consultancy Services, and SBI. A total of 13 companies saw promoters reducing their stakes in their respective companies over the last four quarters. A total of 11 companies reported no change in shareholding over the same period. The year 2018 proved to be a difficult year for the stock markets. In 2018, 15 Sensex companies delivered a negative return. A total of 13 Sensex companies managed to deliver positive returns during the period.