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Pledging of shares -A must check.


Hi there,
In our last article we talked about analysing the shareholding pattern of the company and its significance. In this article, we look at one more aspect connected to it-Pledging of shares by promoters. For example, the promoters of the company may hold 60% of the shares, but what if all those shares are pledged with a financier as collateral for getting additional loan funds? That’s a dangerous situation.

WHY ?

  • Promoters, in order to raise funds for either personal or company needs, pledge their holding shares to any financial institution.
  • Non-banking financial institutions are more active than banks in providing such loans.  Sometimes, promoters collateralize their shares for converting warrants into shares. Also, they might find share prices in the secondary market quite lucrative for fresh purchase and adopt this route for garnering funds for the consideration to be paid for open market purchase. So there are lots of reasons why promoters pledge their shares. Generally, pledging shares is not a good sign.

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How does IIP data affect stock markets?

WHAT ARE IIP NUMBERS?

  • IIP- index of industrial production is a measurement which represents the status of production in the industrial sector for a given period of time compared to a reference period of time.
  • IIP number is one of the best statistical data, which helps us to measure the level of industrial activity in Indian economy. It is a short term indicator. It is useful to guage the rate of industrial growth until the actual results from the annual survey of industries are published.

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How do FI investors affect stock markets?

WHO ARE THEY?

FIIs are Foreign Institutional Investors. A term that is commonly found whenever there’s a discussion on stock markets. FIIs are entities (banks, insurance companies, mutual funds etc) registered in a country other than in which they are investing. For e.g. a US Mutual Fund which invests in the Indian Stock Market. FIIs usually pool large sums of money and invest those in securities, real property and other investment assets. As bulks of their investments are in the stock market, the inflow or outflow of money by FIIs affect the stock market movement significantly. If you follow financial dailies, you are bound to see headlines such as “FIIs remained net buyers”. “Net buyers” implies that foreign investors poured more money into the stock market than they took out, which is generally seen as a positive development as far as our economy is concerned.

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How does interest rate affect stock markets?

WHY SHOULD YOU KNOW ABOUT INTEREST RATES?

Interest Rate in simple words means the cost of borrowing funds. It is the payment we make to the lender for the facility of using his money for our own purpose. Many times our spending decisions are also guided by the interest burden that we would be bearing.

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