To get a sense of who is truly in control of The Federal Bank Limited (NSE:FEDERALBNK), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 61% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
And last week, institutional investors ended up benefitting the most after the company hit ₹482b in market cap. The one-year return on investment is currently 33% and last week's gain would have been more than welcomed.
In the chart below, we zoom in on the different ownership groups of Federal Bank.
View our latest analysis for Federal Bank
Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.
As you can see, institutional investors have a fair amount of stake in Federal Bank. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Federal Bank's earnings history below. Of course, the future is what really matters.
Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. Hedge funds don't have many shares in Federal Bank. The company's largest shareholder is HDFC Asset Management Company Limited, with ownership of 9.0%. Meanwhile, the second and third largest shareholders, hold 7.2% and 3.9%, of the shares outstanding, respectively.
A closer look at our ownership figures suggests that the top 17 shareholders have a combined ownership of 50% implying that no single shareholder has a majority.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.
We can see that insiders own shares in The Federal Bank Limited. The insiders have a meaningful stake worth ₹23b. Most would see this as a real positive. It is good to see this level of investment by insiders. You can check here to see if those insiders have been buying recently.
The general public, who are usually individual investors, hold a 27% stake in Federal Bank. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.
With an ownership of 7.2%, private equity firms are in a position to play a role in shaping corporate strategy with a focus on value creation. Some investors might be encouraged by this, since private equity are sometimes able to encourage strategies that help the market see the value in the company. Alternatively, those holders might be exiting the investment after taking it public.
It's always worth thinking about the different groups who own shares in a company. But to understand Federal Bank better, we need to consider many other factors. Be aware that Federal Bank is showing 1 warning sign in our investment analysis , you should know about...
But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.