Who are the shareholders of a business in the Stock Market?


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Dear friends and investors,

Hope you are enjoying your weekend. I am having a lot of fun and enjoying myself. I have been travelling for the last few weeks and hence couldn't write any article. Anyway, this week, lets look at something very important and is, for me personally, a key aspect in fundamental analysis of a business.

In one of my previous articles, we looked at the Top 10 Greatest Trades of All Time - Click here to read it. Hope you enjoyed reading it.


Let us now have a quick look at the shareholders of any business and what it essentially means.

There are multiple investors in a business. The primary market is the place where the company raises funds by giving its shares at a premium based on future potential. The interested buy the shares at a premium. But who are the people who finally hold shares of a company? Let us have a look.

1) Promoters group - A promoter is a person who understands the business well enough to be a face of the company. Normally a promoter would be the founder of the company. But it is not always necessary. He/She can be an ambassador for the company, and due to rich experience can ensure that the business attracts customers and investors alike. Raising capital is a piece of cake for promoters with excellent track record, since they have built their brand image and shown success in their experience. They have a huge say in the company and can control the company. They are instrumental in the plans and visions of the company and also in giving shares to public investors. Please note that the director / officer of the business who is doing so just professionally will not be a part of the Promoter Group. The Promoter group can be the promoter, and immediate relative of the promoter, or a company as well. You will have both Indian as well as Foreign Promoters. The experience and history of the promoters play a huge role in the success of the company and the valuation which the business will command.

Institutional Investors:

Banks, Financial Institutions, Insurance Companies, Mutual Funds, private Corporate bodies, Trusts etc.

2) Foreign Institutional Investors - Foreign Institutional investors (FIIs) are entities established or incorporated outside India and make proposals for investments in India. They can be international fund houses who have collected money from investors and invest in companies outside their country or region (internationally). In order to invest in the primary and secondary market, they have to go through some schemes like the Portfolio Investment Scheme. Now, there are some RBI regulations which also set an upper cap for the percentage of shares to be given to FIIs. More FIIs entering is normally considered as a good sign since it also shows the confidence of foreign investors in the business. Normally, when the business has a good global presence, FIIs would be interested to invest.

3) Domestic Individual Investors - As the name suggests, the institutional investors who are Indian would fall into this category. This includes the mutual funds and big big business houses which would fall in this category. They have huge money power and buy in bulk for long term.

Non institutional Investors:

4) Bodies corporate - This can be any legal entity, a company, associations etc who want to invest in the business.

5) Retail investors - Investors like you and me who want to buy a chunk of the shares.

When an IPO issues shares in the primary market, the preference is generally given to the Institutional Investors since they buy the shares keeping a long term view in mind. The retail investors are generally given a smaller chunk so that the secondary market does not get lots of shares to trade on a daily basis. 

Now when you are investing in a business, please have a look at the shareholding pattern in the BSE/NSE/Moneycontrol websites.

High promoter holding shows that the promoter is highly confident of the business. He would also be more than happy to pump in money and also raise money to fund the business. A very low promoter holding shows that the confidence on the business is low.
If the promoter shares are significantly lesser in current quarter as compared to previous quarter, we need to be prudent to understand why the promoter sold shares. The earlier we diagnose, the better our decisions will be. This information can be easily procured from the BSE/NSE websites in Disclosures.
High FII and DII holding is also a great sign. You can try to see the shareholding pattern on a quarterly basis to see if the Institutional investment is going up. If it is, that means that they are very confident on the future and hence your investment is a good one. The only bad part if that, if the FII or DII holding is high and they offload the shares, the price comes down crazily.

With this information in mind, try to have a look at the shareholding pattern of your business which you own. How does it look??

I hope I am sowing the seeds in your minds... Have a relaxed week ahead...

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Good luck,

Article BY-
Fundamental Investor

http://www.fundamental-investor.com/
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3 comments

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Puru ji
AUTHOR
November 13, 2016 at 8:14 AM delete

Yes, it is all there in a Shareholding pattern. Thanks for explaining.

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Imran Awan
AUTHOR
November 19, 2016 at 2:36 PM delete

which business is successful now a days?

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April 17, 2017 at 4:47 PM delete

The given information related to stocks is very helpful for me!, i really like this post Thanks for posting nice info.

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