Power Finance Corporation Limited (NSE:PFC) surges 3.7%; state or government who own 56% shares profited along with institutions

Key Insights

• The considerable ownership by state or government in Power Finance indicates that they collectively have a greater say in management and business strategy
• The largest shareholder of the company is India with a 56% stake
• 32% of Power Finance is held by Institutions

To get a sense of who is truly in control of Power Finance Corporation Limited (NSE:PFC), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are state or government with 56% ownership. Put another way, the group faces the maximum upside potential (or downside risk).

State or government gained the most after market cap touched ₹1.7t last week, while institutions who own 32% also benefitted.

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

See our latest analysis for Power Finance

What Does The Institutional Ownership Tell Us About Power Finance?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Power Finance 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 Power 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 Power Finance. Our data shows that India is the largest shareholder with 56% of shares outstanding. With such a huge stake in the ownership, we infer that they have significant control of the future of the company. The WindAcre Partnership LLC is the second largest shareholder owning 4.0% of common stock, and Life Insurance Corporation of India, Asset Management Arm holds about 2.1% 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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Power Finance

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

Insider ownership is positive when it signals leadership are thinking like the true owners of the company. However, high insider ownership can also give immense power to a small group within the company. This can be negative in some circumstances.

Our most recent data indicates that insiders own less than 1% of Power Finance Corporation Limited. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own ₹52m worth of shares. It is good to see board members owning shares, but it might be worth checking if those insiders have been buying.

General Public Ownership

The general public-- including retail investors -- own 12% stake in the company, and hence can't easily be ignored. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Power Finance better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Power Finance (of which 2 make us uncomfortable!) 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.