How Confident Are Insiders About Manappuram Finance Limited (NSE:MANAPPURAM)?

Manappuram Finance Limited, a non banking financial company, provides fund and fee based services in India. Manappuram Finance is one of India’s large-cap stocks that saw some insider buying over the past three months, with insiders investing in more than 26.94 million shares during this period. Generally, insiders buying more shares in their own firm sends a bullish signal. A research published in The MIT Press (1998) concluded that stocks following insider buying outperformed the market by 4.5%. However, it may not be sufficient to base your investment decision merely on these signals. I’ve assessed two potential reasons behind the insiders’ latest motivation to buy more shares.

View our latest analysis for Manappuram Finance

Who Are The Insiders?

Over the past three months, more shares have been bought than sold by Manappuram Finance's' insiders. In total, individual insiders own over 321.05 million shares in the business, which makes up around 38.1% of total shares outstanding. Insiders that have recently bought more shares are:

Name	Management	Board	Total Annual Compensation
Subhadra Manomohanan	✔	✔	₹81.63m
Vazhappully Nandakumar

The entity that bought on the open market in the last three months was Quinag Acquisition (Fpi) Ltd. Although this is an institutional investor, rather than a company executive or board member, the insights gained from direct access to management as a large investor would make it more well-informed than the average retail investor. In this specific instance, I would classify this investor as a company insider.

Is Future Growth Outlook As Bullish?

At first glance, analysts’ earnings expectations of 51.71% over the next three years illustrates a great outlook going forward which is consistent with the signal company insiders are sending with their net buying activity. Digging deeper into the line items, Manappuram Finance is expected to experience a double-digit top-line growth over the next year, which appears to flow through to an earnings growth of 21.19%. High levels of sustained revenue growth as well as improved cost management could see higher levels of future earnings. Insiders recognising these benefits as defensible may accumulate their shares in the company. Another reason could simply be they deem the shares under-priced given the growth potential the business could produce.

Did Stock Price Volatility Instigate Buying?

An alternative reason for recent trades could be insiders taking advantage of the share price volatility. This means, if insiders believe shares were heavily undervalued recently, this would provide a prime opportunity to buy more irrespective of its growth outlook. Within the past three months, Manappuram Finance’s share price traded at a high of ₹127.75 and a low of ₹96.4. This suggests moderate volatility with a share price movement of 32.52%. This movement is potentially meaningful enough to trade on if insiders believe the market has mispriced their companies’ shares.

Next Steps:

Manappuram Finance’s insider meaningful buying activity tells us the shares are currently in favour, which is fairly consistent with earnings growth expectations, as well as the relatively large share price volatility over the same period of trade. However, while insider transactions could be a helpful signal, it is definitely not sufficient on its own to make an investment decision. I've put together two key aspects you should further examine:

1. Financial Health: Does Manappuram Finance have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
2. Other High Quality Alternatives : Are there other high quality stocks you could be holding instead of Manappuram Finance? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.