Could RITES Limited’s (NSE:RITES) Investor Composition Influence The Stock Price?

A look at the shareholders of RITES Limited (NSE:RITES) can tell us which group is most powerful. Insiders often own a large chunk of younger, smaller, companies while huge companies tend to have institutions as shareholders. Companies that used to be publicly owned tend to have lower insider ownership.

With a market capitalization of ₹56b, RITES is a small cap stock, so it might not be well known by many institutional investors. Taking a look at our data on the ownership groups (below), it’s seems that institutions own shares in the company. Let’s take a closer look to see what the different types of shareholder can tell us about RITES.

See our latest analysis for RITES

NSEI:RITES Ownership Summary May 8th 2020
NSEI:RITES Ownership Summary May 8th 2020

What Does The Institutional Ownership Tell Us About RITES?

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.

We can see that RITES does have institutional investors; and they hold 13% of the stock. 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. When multiple institutions own a stock, there’s always a risk that they are in a ‘crowded trade’. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see RITES’s historic earnings and revenue, below, but keep in mind there’s always more to the story.

NSEI:RITES Income Statement May 8th 2020
NSEI:RITES Income Statement May 8th 2020

RITES is not owned by hedge funds. The company’s largest shareholder is India, with ownership of 72%, With such a huge stake in the ownership, we infer that they have significant control of the future of the company. The second largest shareholder with 7.8%, is Life Insurance Corporation of India, Asset Management Arm, followed by HDFC Asset Management Company Limited, with an ownership of 1.2%.

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. Our information suggests that there isn’t any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of RITES

The definition of company insiders can be subjective, and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. The company management answer to the board; and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board, themselves.

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.

Our data suggests that insiders own under 1% of RITES Limited in their own names. It seems the board members have no more than ₹88m worth of shares in the ₹56b company. Many investors in smaller companies prefer to see the board more heavily invested. You can click here to see if those insiders have been buying or selling.

General Public Ownership

With a 14% ownership, the general public have some degree of sway over RITES. While this group can’t necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Case in point: We’ve spotted 2 warning signs for RITES you should be aware of.

Of course this may not be the best stock to buy. Therefore, you may wish to see our free collection of interesting prospects boasting favorable financials.

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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

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