HFCL Limited's (NSE:HFCL) market cap dropped ₹4.8b last week; individual investors who hold 55% were hit as were institutions

Key Insights

• HFCL's significant retail investors ownership suggests that the key decisions are influenced by shareholders from the larger public
• The top 25 shareholders own 44% of the company
• 21% of HFCL is held by Institutions

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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. With 55% stake, retail investors possess the maximum shares in the company. Put another way, the group faces the maximum upside potential (or downside risk).

Following a 4.1% decrease in the stock price last week, retail investors suffered the most losses, but institutions who own 21% stock also took a hit.

Let's delve deeper into each type of owner of HFCL, beginning with the chart below.

View our latest analysis for HFCL

What Does The Institutional Ownership Tell Us About HFCL?

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.

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. 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 HFCL's historic earnings and revenue below, but keep in mind there's always more to the story.

Hedge funds don't have many shares in HFCL. Looking at our data, we can see that the largest shareholder is MN Ventures Private Limited with 16% of shares outstanding. In comparison, the second and third largest shareholders hold about 8.3% and 3.4% of the stock.

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.

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. Our information suggests that there isn't any analyst coverage of the stock, so it is probably little known.

Insider Ownership Of HFCL

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

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 data suggests that insiders own under 1% of HFCL Limited in their own names. However, it's possible that insiders might have an indirect interest through a more complex 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 55% 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

Our data indicates that Private Companies hold 20%, of the company's shares. 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. Case in point: We've spotted 1 warning sign for HFCL you should be aware of.

Of course this may not be the best stock to buy. So take a peek at this free 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.

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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.