With 61% ownership in Mahindra & Mahindra Limited (NSE:M&M), institutional investors have a lot riding on the business

Key Insights

• Given the large stake in the stock by institutions, Mahindra & Mahindra's stock price might be vulnerable to their trading decisions
• The top 10 shareholders own 52% of the company
• Insiders have been selling lately

To get a sense of who is truly in control of Mahindra & Mahindra Limited (NSE:M&M), it is important to understand the ownership structure of the business. With 61% stake, institutions possess the maximum shares in the company. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And as as result, institutional investors reaped the most rewards after the company's stock price gained 3.6% last week. The gains from last week would have further boosted the one-year return to shareholders which currently stand at 93%.

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

View our latest analysis for Mahindra & Mahindra

What Does The Institutional Ownership Tell Us About Mahindra & Mahindra?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Mahindra & Mahindra 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. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Mahindra & Mahindra, (below). Of course, keep in mind that there are other factors to consider, too.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. Hedge funds don't have many shares in Mahindra & Mahindra. The company's largest shareholder is Prudential Management & Services Pvt. Ltd, with ownership of 12%. In comparison, the second and third largest shareholders hold about 7.7% and 7.6% of the stock.

We also observed that the top 10 shareholders account for more than half of the share register, with a few smaller shareholders to balance the interests of the larger ones to a certain extent.

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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Mahindra & Mahindra

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.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Our information suggests that Mahindra & Mahindra Limited insiders own under 1% of the company. However, it's possible that insiders might have an indirect interest through a more complex structure. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own ₹29b worth of shares. 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 14% stake in Mahindra & Mahindra. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Private Company Ownership

It seems that Private Companies own 12%, of the Mahindra & Mahindra 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.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Mahindra & Mahindra better, we need to consider many other factors. Take risks for example - Mahindra & Mahindra has 3 warning signs (and 1 which is a bit concerning) we think you should know about.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter 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.