Do Insiders Own Lots Of Shares In The Federal Bank Limited (NSE:FEDERALBNK)?

A look at the shareholders of The Federal Bank Limited (NSE:FEDERALBNK) 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. Warren Buffett said that he likes ‘a business with enduring competitive advantages that is run by able and owner-oriented people’. So it’s nice to see some insider ownership, because it may suggest that management is owner-oriented.

Federal Bank has a market capitalization of ₹166b, so we would expect some institutional investors to have noticed the stock. In the chart below below, we can see that institutions are noticeable on the share registry. We can zoom in on the different ownership groups, to learn more about FEDERALBNK.

See our latest analysis for Federal Bank

NSEI:FEDERALBNK Ownership Summary, March 2nd 2019
NSEI:FEDERALBNK Ownership Summary, March 2nd 2019

What Does The Institutional Ownership Tell Us About Federal Bank?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it’s included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

Federal Bank already has institutions on the share registry. Indeed, they own 62% of the company. 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Federal Bank, (below). Of course, keep in mind that there are other factors to consider, too.

NSEI:FEDERALBNK Income Statement, March 2nd 2019
NSEI:FEDERALBNK Income Statement, March 2nd 2019

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Hedge funds don’t have many shares in Federal Bank. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Federal Bank

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Shareholders would probably be interested to learn that insiders own shares in The Federal Bank Limited. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around ₹11b worth of shares (at current prices). If you would like to explore the question of insider alignment, you can click here to see if insiders have been buying or selling.

General Public Ownership

The general public, with a 31% stake in the company, will not easily be ignored. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Next Steps:

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.

Many find it useful to take an in depth look at how a company has performed in the past. You can access this detailed graph of past earnings, revenue and cash flow .

If you are like me, you may want to think about whether this company will grow or shrink. Luckily, you can check this free report showing analyst forecasts for its 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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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. Thank you for reading.