Pledged shares refer to the shares that a companyís promoters or major shareholders use as collateral to secure loans or other forms of borrowing. When these shares are pledged, the borrower retains ownership, but the lender has the right to sell them if the borrower fails to repay the loan. This practice is common in Indiaís capital markets, especially among promoter groups seeking funds for business expansion or debt repayment.

From an investorís perspective, a high level of pledged shares can be a potential red flag. It indicates that promoters have borrowed heavily against their holdings, which may increase the financial risk for the company. If the share price drops significantly, lenders might invoke the pledge and sell the shares in the open market, further depressing the stock price. Therefore, investors should always review a companyís pledged share percentage before investing, as it directly impacts shareholding stability and market sentiment.

Companies are required by SEBI regulations to disclose the details of pledged shares in their quarterly shareholding pattern. This ensures transparency and helps investors assess promoter confidence in the business. A consistent or increasing pledge ratio may suggest liquidity stress, while a declining pledge ratio usually reflects improving financial health and reduced dependence on debt.

In conclusion, while pledging shares can serve as a legitimate financial tool for promoters, excessive reliance on it can weaken investor confidence and expose the company to market volatility. Investors should analyze pledged data along with other financial indicators such as debt levels, cash flows, and profitability to make informed investment decisions.