Institutional investors have a lot riding on Shriram Finance Limited (NSE:SHRIRAMFIN) with 42% ownership

Key Insights

• Institutions' substantial holdings in Shriram Finance implies that they have significant influence over the company's share price
• The top 14 shareholders own 51% of the company
• 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 Shriram Finance Limited (NSE:SHRIRAMFIN), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 42% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And things are looking up for institutional investors after the company gained ₹86b in market cap last week. The gains from last week would have further boosted the one-year return to shareholders which currently stand at 22%.

In the chart below, we zoom in on the different ownership groups of Shriram Finance.

See our latest analysis for Shriram Finance

What Does The Institutional Ownership Tell Us About Shriram Finance?

Institutional investors commonly compare their own returns to the returns of a commonly followed index. So they generally do consider buying larger companies that are included in the relevant benchmark index.

Shriram Finance already has institutions on the share registry. Indeed, they own a respectable stake in the company. This suggests some credibility amongst professional investors. But we can't rely on that fact alone since institutions make bad investments sometimes, just like everyone does. 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 Shriram 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 Shriram Finance. Our data shows that Shriram Capital Private Limited is the largest shareholder with 18% of shares outstanding. Meanwhile, the second and third largest shareholders, hold 7.1% and 6.1%, of the shares outstanding, respectively.

A closer look at our ownership figures suggests that the top 14 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.

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. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Shriram Finance

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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 Shriram Finance Limited insiders own under 1% of the company. However, it's possible that insiders might have an indirect interest through a more complex structure. 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 ₹136m worth of shares. It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public-- including retail investors -- own 25% 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.

Private Company Ownership

Our data indicates that Private Companies hold 25%, of the company's shares. 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 Shriram Finance better, we need to consider many other factors. To that end, you should learn about the 3 warning signs we've spotted with Shriram Finance (including 2 which can't be ignored) .

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.