IIFL Finance Limited's (NSE:IIFL) recent 4.7% pullback adds to one-year year losses, institutional owners may take drastic measures

Key Insights

• Given the large stake in the stock by institutions, IIFL Finance's stock price might be vulnerable to their trading decisions
• A total of 7 investors have a majority stake in the company with 53% ownership
• Insiders own 25% of IIFL Finance

Every investor in IIFL Finance Limited (NSE:IIFL) should be aware of the most powerful shareholder groups. And the group that holds the biggest piece of the pie are institutions with 30% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And so it follows that institutional investors was the group most impacted after the company's market cap fell to ₹208b last week after a 4.7% drop in the share price. The recent loss, which adds to a one-year loss of 8.3% for stockholders, may not sit well with this group of investors. Often called “market movers", institutions wield significant power in influencing the price dynamics of any stock. As a result, if the downtrend continues, institutions may face pressures to sell IIFL Finance, which might have negative implications on individual investors.

Let's take a closer look to see what the different types of shareholders can tell us about IIFL Finance.

View our latest analysis for IIFL Finance

What Does The Institutional Ownership Tell Us About IIFL Finance?

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.

IIFL Finance 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. 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 IIFL Finance's historic earnings and revenue below, but keep in mind there's always more to the story.

We note that hedge funds don't have a meaningful investment in IIFL Finance. Because actions speak louder than words, we consider it a good sign when insiders own a significant stake in a company. In IIFL Finance's case, its Co-Chief Executive Officer, Nirmal Jain, is the largest shareholder, holding 16% of shares outstanding. For context, the second largest shareholder holds about 15% of the shares outstanding, followed by an ownership of 8.0% by the third-largest shareholder. Furthermore, CEO Rajamani Venkataraman is the owner of 3.0% of the company's shares.

We also observed that the top 7 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of IIFL Finance

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 information suggests that insiders maintain a significant holding in IIFL Finance Limited. It has a market capitalization of just ₹208b, and insiders have ₹51b worth of shares in their own names. That's quite significant. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 24% stake in IIFL Finance. 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.

Private Company Ownership

It seems that Private Companies own 6.2%, of the IIFL Finance stock. Private companies may be related parties. Sometimes insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual. While it's hard to draw any broad stroke conclusions, it is worth noting as an area for further research.

Public Company Ownership

Public companies currently own 15% of IIFL Finance stock. 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 IIFL Finance better, we need to consider many other factors. Be aware that IIFL Finance is showing 3 warning signs in our investment analysis , and 1 of those makes us a bit uncomfortable...

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