• Stock promoters are individuals who use various marketing strategies to promote the share of a company.
• Their main aim is to help companies raise capital during IPO or increase the demand for their listed shares.
• Stock promoters are not required to have any qualifications or licence.

You must have heard about Initial Public Offerings (IPOs), which have become one of the most common phenomena in the Indian stock market. Companies that start with a small capital expand over time and reach a stage when they require more funds. They offer their privately held shares to the general public to raise funds and use them for various business aspects, such as buying new machinery or repaying debt. However, when it comes to offering the shares for the first time through an IPO, the companies want to ensure that the general public knows about the IPO and subscribes to their issue so that they can get the required funds. Furthermore, some companies generally market their shares even after they are listed to ensure ample demand for them.

One of the best ways companies ensure effective marketing of their shares is through stock promoters. This blog will help you understand who are promoters in share market and how they help companies promote their shares.

Stock promoters are individuals who help companies raise adequate capital by promoting their shares through various marketing strategies. Most companies hire stock promoters before their IPO issue opens to create market awareness about the IPO. Stock promoters ensure that company shares are marketed so that as many equity investors as possible apply to buy the company's shares. Promoters play a significant role in promoting a startup or a private company and get the company's equities in return. They may or may not sell their holdings during an IPO. Investors find investing in a company’s stock better if the promoter holdings are high.

Here are the types of stock promoters to better understand who are promoters in the share market:

• Penny promoters: Penny stock promoters focus on low-priced stocks, typically trading under Rs. 10 per share. Investors consider Penny shares highly volatile and risky as little is known about the company. However, when a company with a penny stock has a stock promoter with significant holdings, it creates confidence among investors, leading them to buy the company's shares.
• Promoters specialising in government securities: Promoters specialising in government securities focus on promoting and facilitating investment in bonds and other debt instruments issued by government entities. They buy such instruments through auctions and sell them over the counter through stock exchanges to ensure investments in government securities.
• Institutional promoters: Institutional promoters are current shareholders like you who end up promoting the shares of a company to friends and family for buying. Such shareholders do extensive research to purchase the shares for themselves and then recommend the shares to others, helping indirectly promote the company shares.

Stock promoters are among the most crucial individuals when it comes to promoting a company's shares so that they can either raise more funds or increase demand for the shares. Investors usually analyse and compare shares based on promoter holdings as it represents their confidence in the potential of the stock to increase in price in the future. If a stock has a high promoter holding, there is a chance that it will attract more investors. On the other hand, if a stock has low promoter holding, it is likely to see lower demand from investors.

Furthermore, stock promoters influence the stock market by actively marketing and creating interest in specific stocks, often aiming to boost their visibility and trading volume. They use various strategies, including advertising, social media campaigns, and investor seminars, to generate excitement and attract investors. This helps increase the invested capital in the stock market along with the share demand for companies. If the demand is high, the share price generally increases, providing more profits to the promoters and the investors.

A stock promoter plays a crucial role in marketing and promoting a company's shares. They have the power to influence the price of a stock based on the number of shares they hold in the company. Although most promoters get shares as compensation for their promotion activities and hold the shares even after the IPO, believing that the shares can offer them more returns in the future, they are criticised for some reasons.

One of the most significant criticisms they face is because of a scheme called ‘pump and dump.’ Promoters buy a high-value stake in a company to represent the stock as a viable investment even when the company has weak financials and no potential. Their main aim is to use their power to drive the price of the share as investors start buying the stock because of the high promoter holding. As more investors start buying the stock, the demand and the share price increase. When the share price increases to a target, promoters dump and sell the shares, creating panic among investors who start selling, reducing the share price significantly.

Hence, it becomes important to extensively analyse other factors related to the technical and fundamental analysis in addition to promoter holdings. It will help in creating an effective investment strategy and ensure you do not fall for schemes such as ‘pump and dump.’

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Conclusion

Stock promoters are individuals who promote the shares of a company to let them raise capital or share demand. They have a significant impact on the stock market by drawing attention to certain stocks and influencing investor behaviour. While some promoters provide valuable insights and help companies gain visibility, others may use misleading tactics to manipulate stock prices for their benefit. As an investor, it is important to understand who are promoters in the share market and ensure that you analyse stocks based on various other indicators to reduce your losses and increase your profit margin.