Public companies who have a significant stake must be disappointed along with institutions after REC Limited's (NSE:RECLTD) market cap dropped by ₹65b

Key Insights

• The considerable ownership by public companies in REC indicates that they collectively have a greater say in management and business strategy
• Power Finance Corporation Limited owns 53% of the company
• Institutions own 24% of REC

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If you want to know who really controls REC Limited (NSE:RECLTD), then you'll have to look at the makeup of its share registry. With 53% stake, public companies possess the maximum shares in the company. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

While the holdings of public companies took a hit after last week’s 5.8% price drop, institutions with their 24% holdings also suffered.

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

View our latest analysis for REC

What Does The Institutional Ownership Tell Us About REC?

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.

REC 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. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at REC's earnings history below. Of course, the future is what really matters.

We note that hedge funds don't have a meaningful investment in REC. Our data shows that Power Finance Corporation Limited is the largest shareholder with 53% of shares outstanding. This implies that they have majority interest control of the future of the company. Meanwhile, the second and third largest shareholders, hold 2.5% and 1.8%, of the shares outstanding, respectively.

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 REC

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.

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 data suggests that insiders own under 1% of REC Limited in their own names. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own ₹3.4m of stock. In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.

General Public Ownership

With a 22% ownership, the general public, mostly comprising of individual investors, have some degree of sway over REC. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Public Company Ownership

It appears to us that public companies own 53% of REC. This may be a strategic interest and the two companies may have related business interests. It could be that they have de-merged. This holding is probably worth investigating further.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Case in point: We've spotted 2 warning signs for REC you should be aware of, and 1 of them doesn't sit too well with us.

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.