Aavas Financiers Limited's (NSE:AAVAS) institutional investors lost 3.2% last week but have benefitted from longer-term gains

Key Insights

• Significantly high institutional ownership implies Aavas Financiers' stock price is sensitive to their trading actions
• A total of 8 investors have a majority stake in the company with 51% ownership
• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

To get a sense of who is truly in control of Aavas Financiers Limited (NSE:AAVAS), it is important to understand the ownership structure of the business. With 58% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Losing money on investments is something no shareholder enjoys, least of all institutional investors who saw their holdings value drop by 3.2% last week. Still, the 21% one-year gains may have helped mitigate their overall losses. We would assume however, that they would be on the lookout for weakness in the future.

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

Check out our latest analysis for Aavas Financiers

What Does The Institutional Ownership Tell Us About Aavas Financiers?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Aavas Financiers does have institutional investors; and they hold a good portion of the company's 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 Aavas Financiers' historic earnings and revenue below, but keep in mind there's always more to the story.

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Aavas Financiers is not owned by hedge funds. Lake District Holdings Limited is currently the largest shareholder, with 16% of shares outstanding. For context, the second largest shareholder holds about 8.9% of the shares outstanding, followed by an ownership of 7.6% by the third-largest shareholder.

We did some more digging and found that 8 of the top shareholders account for roughly 51% of the register, implying that along with larger shareholders, there are a few smaller shareholders, thereby balancing out each others interests somewhat.

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 Aavas Financiers

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. 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.

We can see that insiders own shares in Aavas Financiers Limited. This is a big company, so it is good to see this level of alignment. Insiders own ₹4.7b 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 14% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Aavas Financiers. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Company Ownership

We can see that Private Companies own 23%, of the shares on issue. It's hard to draw any conclusions from this fact alone, so its worth looking into who owns those private companies. Sometimes insiders or other related parties have an interest in shares in a public company through a separate private company.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Aavas Financiers better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Aavas Financiers , and understanding them should be part of your investment process.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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