Pledging of shares at seven-year high: study

What does it mean if the shares of a company are pledged by the promoter? Pranav Haldea, managing director of Prime Database, says pledging of shares by promoters is by itself not a bad thing, as it is the fastest and cheapest way to raise funds. But, a combination of high levels of promoters pledging shares, high debt and bad financials can be risky. "While there is no scientific number to the percentage of promoters' shareholding under pledge, if it is more than 50-60 per cent, I would stay away from such companies. Additionally, if there is a market correction and share prices fall, there could be a margin call which might even lead to a change in management. As an investor, I would watch out for such events,'' he adds.

Of the 1,517 National Stock Exchange-listed companies, promoters' shares were pledged in as many as 509 companies as on June 30, compared with 496 companies a year before.

As on August 11, the number of companies in which promoters' shares were pledged increased to 522.