Institutional investors in Tata Chemicals Limited (NSE:TATACHEM) see ₹14b decrease in market cap last week, although long-term gains have benefitted them.

Key Insights

• Given the large stake in the stock by institutions, Tata Chemicals' stock price might be vulnerable to their trading decisions
• 53% of the business is held by the top 5 shareholders
• Using data from analyst forecasts alongside ownership research, one can better assess the future performance of a company

Every investor in Tata Chemicals Limited (NSE:TATACHEM) should be aware of the most powerful shareholder groups. We can see that institutions own the lion's share in the company with 35% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Losing money on investments is something no shareholder enjoys, least of all institutional investors who saw their holdings value drop by 4.6% last week. However, the 16% one-year return to shareholders might have softened the blow. They should, however, be mindful of further losses in the future.

In the chart below, we zoom in on the different ownership groups of Tata Chemicals.

View our latest analysis for Tata Chemicals

What Does The Institutional Ownership Tell Us About Tata Chemicals?

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.

As you can see, institutional investors have a fair amount of stake in Tata Chemicals. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 Tata Chemicals' 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 Tata Chemicals. Tata Sons Private Limited is currently the company's largest shareholder with 32% of shares outstanding. In comparison, the second and third largest shareholders hold about 8.2% and 6.0% of the stock.

On looking further, we found that 53% of the shares are owned by the top 5 shareholders. In other words, these shareholders have a meaningful say in the decisions of the company.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Tata Chemicals

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 most recent data indicates that insiders own less than 1% of Tata Chemicals Limited. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. It's a big company, so even a small proportional interest can create alignment between the board and shareholders. In this case insiders own ₹111m 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 32% stake in the company, and hence can't easily be ignored. 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

We can see that Private Companies own 32%, of the shares on issue. 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 Tata Chemicals better, we need to consider many other factors. Take risks for example - Tata Chemicals has 1 warning sign we think you should be aware of.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.