HFCL Limited's (NSE:HFCL) last week's 4.5% decline must have disappointed retail investors who have a significant stake

Key Insights

• The considerable ownership by retail investors in HFCL indicates that they collectively have a greater say in management and business strategy
• A total of 25 investors have a majority stake in the company with 46% ownership
• 20% of HFCL is held by Institutions

To get a sense of who is truly in control of HFCL Limited (NSE:HFCL), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are retail investors with 54% ownership. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

As market cap fell to ₹114b last week, retail investors would have faced the highest losses than any other shareholder groups of the company.

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

View our latest analysis for HFCL

What Does The Institutional Ownership Tell Us About HFCL?

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 HFCL. 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 HFCL's earnings history below. Of course, the future is what really matters.

We note that hedge funds don't have a meaningful investment in HFCL. Our data shows that MN Ventures Private Limited is the largest shareholder with 19% of shares outstanding. With 8.3% and 3.4% of the shares outstanding respectively, quant Money Managers Ltd. and Reliance Industries Limited are the second and third largest shareholders.

A deeper look at our ownership data shows that the top 25 shareholders collectively hold less than half of the register, suggesting a large group of small holders where no single shareholder has a majority.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. As far as we can tell there isn't analyst coverage of the company, so it is probably flying under the radar.

Insider Ownership Of HFCL

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. 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.

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.

Our information suggests that HFCL Limited insiders own under 1% of the company. We do note, however, it is possible insiders have an indirect interest through a private company or other corporate structure. Keep in mind that it's a big company, and the insiders own ₹315m worth of shares. The absolute value might be more important than the proportional share. 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, who are usually individual investors, hold a substantial 54% stake in HFCL, suggesting it is a fairly popular stock. With this amount of ownership, retail investors can collectively play a role in decisions that affect shareholder returns, such as dividend policies and the appointment of directors. They can also exercise the power to vote on acquisitions or mergers that may not improve profitability.

Private Company Ownership

It seems that Private Companies own 23%, of the HFCL stock. Private companies may be related parties. Sometimes insiders have an interest in a public company through a holding in a private company, rather than in their own capacity as an individual. While it's hard to draw any broad stroke conclusions, it is worth noting as an area for further research.

Public Company Ownership

We can see that public companies hold 3.4% of the HFCL shares on issue. We can't be certain but it is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand HFCL better, we need to consider many other factors.

I always like to check for a history of revenue growth. You can too, by accessing this free chart of historic revenue and earnings in this detailed graph.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of interesting companies.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.