The Reliance Industries Limited (NSE:RELIANCE) Ownership Structure Could Be Important

Ricardo Crouch

Updated Thu, Aug 30, 2018, 6:26 PM

In this article, I’m going to take a look at Reliance Industries Limited’s (NSE:RELIANCE) latest ownership structure, a non-fundamental factor which is important, but remains a less discussed subject among investors. A company’s ownership structure is often linked to its share performance in both the long- and short-term. 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, it is beneficial for us to examine RELIANCE’s ownership structure in more detail.

See our latest analysis for Reliance Industries

NSEI:RELIANCE Ownership Summary August 31st 18

Institutional Ownership

RELIANCE’s 26.3% institutional ownership seems enough to cause large share price movements in the case of significant share sell-off or acquisitions by institutions, particularly when there is a low level of public shares available on the market to trade. These moves, at least in the short-term, are generally observed in an institutional ownership mix comprising of active stock pickers, in particular levered hedge funds, which can cause large price swings. In the case of RELIANCE, investors need not worry about such volatility considering active hedge funds don’t have a significant stake. However, we should dig deeper into RELIANCE’s ownership structure and find out how other key ownership classes can affect its investment profile.

Insider Ownership

An important group of shareholders are company insiders. Insider ownership has to do more with how the company is managed and less to do with the direct impact of the magnitude of shares trading on the market. Although individuals in RELIANCE hold only a 1.1% stake, given RELIANCE is a large-cap company, it is a relatively large amount. This is a good sign for shareholders as the company’s executives and directors have their incentives directly linked to the company’s performance. I will also like to check what insiders have been doing recently with their holdings. Insider buying may be a sign of upbeat future expectations, however, selling doesn’t necessarily mean the opposite as insiders may be motivated by their personal financial needs.

General Public Ownership

A substantial ownership of 20.6% in RELIANCE 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 Ownership

Potential investors in RELIANCE should also look at another important group of investors: private companies, with a stake of 50.2%, 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 RELIANCE’s business strategy. Thus, potential investors should look into these business relations and check how it can impact long-term shareholder returns.

Next Steps:

The company’s high institutional ownership makes margin of safety a very important consideration to existing investors since long bull and bear trends often emerge when these big-ticket investors see a change in long-term potential of the company. This will allow investors to reduce the impact of non-fundamental factors, such as volatile block trading impact on their portfolio value. However, ownership structure should not be the only determining factor when you’re building an investment thesis for RELIANCE. Instead, you should be evaluating company-specific factors such as the intrinsic valuation, which is a key driver of Reliance Industries’s share price. I highly recommend you to complete your research by taking a look at the following:

Future Outlook: What are well-informed industry analysts predicting for RELIANCE’s future growth? Take a look at our free research report of analyst consensus for RELIANCE’s outlook.
Past Track Record: Has RELIANCE 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 RELIANCE’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 editorial-team@simplywallst.com.

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