NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
An analyst reviewing a company's shareholding pattern observes that promoter pledging of shares has risen from 5% to 45% of promoter holding in two years. Which is the most appropriate inference?
A sharp rise in promoter pledging signals that promoters are borrowing against their shares, and if the share price falls lenders may invoke the pledge and sell, causing further price pressure. Analysts therefore treat high pledging as a governance and financial risk.
- AThe promoters are increasing their ownership stake in the company
- BThe company has become debt free
- CPromoters may be raising funds against shares, raising risk of forced selling if the share price fallsCorrect
- DPledging is only relevant for public sector companies
Explanation
Pledged shares act as collateral for loans. A sharp rise suggests promoters need funds, and if the price falls lenders may invoke the pledge and sell shares, hurting the stock. Pledging does not raise ownership or signal being debt free.
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