Pledging pains

Promoters pledge their shares as collateral to borrow money. All Indian listed companies are required to disclose the data of promoter pledging. Investors must find out the amount of shares pledged before investing in a company. Companies in which a sizeable portions of promoters' stakes are pledged should be avoided. More specifically, pledging in itself is not unhealthy; what matters is what the money raised through pledging is used for. Promoters frequently pledge their holdings to inject liquidity in their companies or for other business reasons. However, pledging of a large part of promoters' holdings might reflect distress in a company. Pledging of large stakes can even lead to the promoter losing control over the company. If a promoter has pledged his stake with a bank and the stock price decreases, the value of the shares pledged also declines. Thus, promoters might need to pledge more shares to match the amount of the loan. If the promoters are not able to pay the loan back, the bank can sell the pledged shares in the open market. This could even lead to promoters losing their control over the company and hammering of the stock price. A smart investor is one who knows where to invest. And a street-smart investor is one who also understands where not to invest. We hereby provide a list of stocks