Institutions profited after Firstsource Solutions Limited's (NSE:FSL) market cap rose ₹9.8b last week but public companies profited the most

Key Insights

• Firstsource Solutions' significant public companies ownership suggests that the key decisions are influenced by shareholders from the larger public
• 54% of the company is held by a single shareholder (RPSG Ventures Limited)
• Insiders have been selling lately

To get a sense of who is truly in control of Firstsource Solutions Limited (NSE:FSL), it is important to understand the ownership structure of the business. With 54% stake, public companies possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

While public companies were the group that benefitted the most from last week’s ₹9.8b market cap gain, institutions too had a 26% share in those profits.

In the chart below, we zoom in on the different ownership groups of Firstsource Solutions.

See our latest analysis for Firstsource Solutions

What Does The Institutional Ownership Tell Us About Firstsource Solutions?

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 Firstsource Solutions. 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 Firstsource Solutions, (below). Of course, keep in mind that there are other factors to consider, too.

Firstsource Solutions is not owned by hedge funds. RPSG Ventures Limited is currently the largest shareholder, with 54% of shares outstanding. This essentially means that they have extensive influence, if not outright control, over the future of the corporation. HDFC Asset Management Company Limited is the second largest shareholder owning 9.3% of common stock, and Tata Asset Management Limited holds about 2.0% of the company stock.

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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Firstsource Solutions

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Management ultimately answers to the board. However, it is not uncommon for managers to be executive board members, especially if they are a founder or the CEO.

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.

Our data suggests that insiders own under 1% of Firstsource Solutions Limited in their own names. Keep in mind that it's a big company, and the insiders own ₹887m worth of shares. The absolute value might be more important than the proportional share. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public-- including retail investors -- own 18% stake in the company, and hence can't easily be ignored. 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.

Public Company Ownership

We can see that public companies hold 54% of the Firstsource Solutions shares on issue. We can't be certain but it is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Firstsource Solutions better, we need to consider many other factors. Be aware that Firstsource Solutions is showing 2 warning signs in our investment analysis , you should know about...

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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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com