In bull market when every company playing upper circuit game, pledging by promoters becomes a routine work,
Whatsoever motive behind pledging.
But real test start when market takes reversal then those pledged companies start showing their real colour.
HOW problem start let’s see
Suppose a company stock price is 200
And it wanted to create pledge.
Then financial institutions can give 60 or 70% amounts of the stock price on creation of pledge
Means pledged prices would be 140.
If stock prices falls upto 140
Then financial institutions ask for either
FRESH creation of pledge or sell at 140
To reduce loss.
This will create pressure on stock prices and it will fall further.
Thats why falling prices with increased pledge is very very bad.