Infosys Limited's (NSE:INFY) latest 4.9% decline adds to one-year losses, institutional investors may consider drastic measures

Key Insights

• Significantly high institutional ownership implies Infosys' stock price is sensitive to their trading actions
• A total of 23 investors have a majority stake in the company with 51% ownership
• Insiders own 13% of Infosys

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Every investor in Infosys Limited (NSE:INFY) should be aware of the most powerful shareholder groups. With 63% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

And so it follows that institutional investors was the group most impacted after the company's market cap fell to ₹6.0t last week after a 4.9% drop in the share price. The recent loss, which adds to a one-year loss of 21% for stockholders, may not sit well with this group of investors. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the downtrend continues, institutions may face pressures to sell Infosys, which might have negative implications on individual investors.

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

View our latest analysis for Infosys

What Does The Institutional Ownership Tell Us About Infosys?

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.

We can see that Infosys 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. 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 Infosys' earnings history below. Of course, the future is what really matters.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. We note that hedge funds don't have a meaningful investment in Infosys. The company's largest shareholder is Life Insurance Corporation of India, with ownership of 9.7%. For context, the second largest shareholder holds about 4.8% of the shares outstanding, followed by an ownership of 4.0% by the third-largest shareholder.

Looking at the shareholder registry, we can see that 51% of the ownership is controlled by the top 23 shareholders, meaning that no single shareholder has a majority interest in the ownership.

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 Infosys

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

It seems insiders own a significant proportion of Infosys Limited. It has a market capitalization of just ₹6.0t, and insiders have ₹786b worth of shares in their own names. That's quite significant. Most would say this shows a good degree of alignment with shareholders, especially in a company of this size. You can click here to see if those insiders have been buying or selling.

General Public Ownership

The general public, who are usually individual investors, hold a 22% stake in Infosys. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Be aware that Infosys is showing 1 warning sign in our investment analysis , 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.