I am going to take a deep dive into HCL Technologies Limited’s (NSE:HCLTECH) most recent ownership structure, not a frequent subject of discussion among individual investors. When it comes to ownership structure of a company, the impact has been observed in both the long-and short-term performance of shares. The effect of an active institutional investor with a similar ownership as a passive pension-fund can be vastly different on a company’s corporate governance and accountability to shareholders. While this may be more interesting for long-term investors, short-term investors can also benefit by paying attention to when these institutions trade in order to take advantage of the heightened volatility. Therefore, I will take a look at HCLTECH’s shareholders in more detail.
Institutional OwnershipInstitutions account for 21.02% of HCLTECH’s outstanding shares, a significant enough holding to move stock prices if they start buying and selling in large quantities, especially when there are relatively small amounts of shares available on the market to trade. Although HCLTECH has a high institutional ownership, such stock moves, in the short-term, are more commonly linked to a particular type of active institutional investors – hedge funds. For HCLTECH shareholders, the potential of this type of share price volatility shouldn’t be as concerning as hedge fund ownership is is not significant,indicating few chances of such sudden price moves. While that hardly seems concerning, I will explore further into HCLTECH’s ownership type to find out how it can affect the company’s investment profile.
Insider OwnershipInsiders form a group of important ownership types as they manage the company’s operations and decide the best use of capital. Insider ownership has been linked to better alignment between management and shareholders. A stake of less than 1% in HCLTECH is relatively small, though at least there is still some alignment of interest with shareholders. A higher level of insider ownership has been found to reflect the choosing of projects with higher return on investments compared to lower returning projects for the sake of expansion. In addition to this, it may be interesting to look at insider buying and selling activities. Keep in mind that buying may be sign of upbeat future expectations, but selling doesn’t necessarily mean the opposite as the insiders might just be doing it out of their personal financial needs.
General Public OwnershipA big stake of 18.67% in HCLTECH is held by the general public. This level of ownership gives retail investors the power to sway key policy decisions such as board composition, executive compensation, and potential acquisitions. This is a positive sign for an investor who wants to be involved in key decision-making of the company.
Private Company OwnershipPotential investors in HCLTECH should also look at another important group of investors: private companies, with a stake of 60.17%, who are primarily invested because of strategic and capital gain interests. This kind of ownership, if predominantly strategic, can give these companies a significant power to affect HCLTECH’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.
HCLTECH’s considerably high level of institutional ownership calls for further analysis into its margin of safety. This is to avoid getting trapped in a sustained sell-off that is often observed in stocks with this level of institutional participation. However, ownership structure should not be the only determining factor when you’re building an investment thesis for HCLTECH. Rather, you should be looking at fundamental drivers such as the intrinsic valuation, which is a key driver of HCL Technologies’s share price. I urge you to complete your research by taking a look at the following:
- Future Outlook: What are well-informed industry analysts predicting for HCLTECH’s future growth? Take a look at our free research report of analyst consensus for HCLTECH’s outlook.
- Past Track Record: Has HCLTECH been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of HCLTECH’s historicals for more clarity.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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 firstname.lastname@example.org.