Larsen & Toubro Limited (NSE:LT) is favoured by institutional owners who hold 53% of the company

Key Insights

• Significantly high institutional ownership implies Larsen & Toubro's stock price is sensitive to their trading actions
• The top 11 shareholders own 51% of the company
• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

A look at the shareholders of Larsen & Toubro Limited (NSE:LT) can tell us which group is most powerful. The group holding the most number of shares in the company, around 53% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).

Because institutional owners have a huge pool of resources and liquidity, their investing decisions tend to carry a great deal of weight, especially with individual investors. Therefore, a good portion of institutional money invested in the company is usually a huge vote of confidence on its future.

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

See our latest analysis for Larsen & Toubro

What Does The Institutional Ownership Tell Us About Larsen & Toubro?

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.

Larsen & Toubro already has institutions on the share registry. Indeed, they own a respectable stake in the company. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. 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 Larsen & Toubro's historic earnings and revenue below, but keep in mind there's always more to the story.

Investors should note that institutions actually own more than half the company, so they can collectively wield significant power. We note that hedge funds don't have a meaningful investment in Larsen & Toubro. Our data shows that L&t Employees Welfare Foundation Trust is the largest shareholder with 14% of shares outstanding. Life Insurance Corporation of India, Asset Management Arm is the second largest shareholder owning 12% of common stock, and SBI Funds Management Limited holds about 5.4% of the company stock.

A closer look at our ownership figures suggests that the top 11 shareholders have a combined ownership of 51% implying that 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. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Larsen & Toubro

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 most recent data indicates that insiders own less than 1% of Larsen & Toubro Limited. Being so large, we would not expect insiders to own a large proportion of the stock. Collectively, they own ₹6.2b of stock. 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 30% stake in Larsen & Toubro. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. For example, we've discovered 2 warning signs for Larsen & Toubro (1 is concerning!) that you should be aware of before investing here.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

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.