Institutional investors are The Federal Bank Limited's (NSE:FEDERALBNK) biggest bettors and were rewarded after last week's ₹29b market cap gain

Key Insights

• Significantly high institutional ownership implies Federal Bank's stock price is sensitive to their trading actions
• The top 21 shareholders own 51% of the company
• Analyst forecasts along with ownership data serve to give a strong idea about prospects for a business

If you want to know who really controls The Federal Bank Limited (NSE:FEDERALBNK), then you'll have to look at the makeup of its share registry. The group holding the most number of shares in the company, around 56% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

Last week’s 7.7% gain means that institutional investors were on the positive end of the spectrum even as the company has shown strong longer-term trends. One-year return to shareholders is currently 21% and last week’s gain was the icing on the cake.

Let's delve deeper into each type of owner of Federal Bank, beginning with the chart below.

See our latest analysis for Federal Bank

What Does The Institutional Ownership Tell Us About 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.

Federal Bank already has institutions on the share registry. Indeed, they own a respectable stake in 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.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in Federal Bank. Looking at our data, we can see that the largest shareholder is International Finance Corporation with 7.3% of shares outstanding. HDFC Asset Management Company Limited is the second largest shareholder owning 6.5% of common stock, and Mirae Asset Global Investments Co., Ltd. holds about 3.5% of the company stock.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 21 shareholders, meaning that no single shareholder has a majority interest in the ownership.

While it makes sense to study institutional ownership data for a company, it also makes sense to study analyst sentiments to know which way the wind is blowing. 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.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Shareholders would probably be interested to learn that insiders own shares in The Federal Bank Limited. This is a big company, so it is good to see this level of alignment. Insiders own ₹21b worth of shares (at current prices). Most would say this shows alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.

General Public Ownership

With a 32% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Federal Bank. 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.

Private Equity Ownership

With a stake of 7.3%, private equity firms could influence the Federal Bank board. Some might like this, because private equity are sometimes activists who hold management accountable. But other times, private equity is selling out, having taking the company public.

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. Be aware that Federal Bank is showing 2 warning signs in our investment analysis , you should know about...

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

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.