How Promoter Pledging Affects Share
Praveen Dubey (SEBI Registered RA)
SP RESEARCHVIA PVT. LTD. (INH000015808)
The Risk of Forced Liquidation Cycles
Promoters often pledge their shares to raise debt for business expansions or personal ventures. However, this creates a major risk for retail investors. The compliance desk at SP RESEARCHVIA PVT. LTD. analyzes this structure.
Why is promoter share pledging considered a major risk?
If the stock price falls below a threshold, lenders make margin calls. If promoters fail to deposit additional cash or collateral, lenders sell the pledged shares, triggering a sharp downward spiral in the stock price.
Analyzing Pledging Thresholds
We recommend avoiding companies where promoters have pledged more than 25-30% of their total holdings, as it exposes the company to extreme market-driven liquidity shocks.
Written by Praveen Dubey
Chief Research Analyst | SEBI Reg: INH000015808
Statutory Warning & Risk Disclaimer: Investment in securities market is subject to market risks. Read all related documents carefully before investing. Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Content provided on this blog is for informational and educational purposes only.