Mphasis Limited's (NSE:MPHASIS) recent 4.2% pullback adds to one-year year losses, institutional owners may take drastic measures

Key Insights

• Institutions' substantial holdings in Mphasis implies that they have significant influence over the company's share price
• A total of 3 investors have a majority stake in the company with 53% ownership
• Recent sales by insiders

Every investor in Mphasis Limited (NSE:MPHASIS) should be aware of the most powerful shareholder groups. The group holding the most number of shares in the company, around 47% to be precise, is institutions. Put another way, the group faces the maximum upside potential (or downside risk).

As a result, institutional investors endured the highest losses last week after market cap fell by ₹18b. The recent loss, which adds to a one-year loss of 9.4% for stockholders, may not sit well with this group of investors. Also referred to as "smart money", institutions have a lot of sway over how a stock's price moves. As a result, if the downtrend continues, institutions may face pressures to sell Mphasis, which might have negative implications on individual investors.

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

Check out our latest analysis for Mphasis

What Does The Institutional Ownership Tell Us About Mphasis?

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.

We can see that Mphasis 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 Mphasis, (below). Of course, keep in mind that there are other factors to consider, too.

Hedge funds don't have many shares in Mphasis. BCP Topco IX Pte. Ltd. is currently the largest shareholder, with 40% of shares outstanding. Life Insurance Corporation of India, Asset Management Arm is the second largest shareholder owning 6.6% of common stock, and Kotak Mahindra Asset Management Company Limited holds about 6.4% of the company stock.

A more detailed study of the shareholder registry showed us that 3 of the top shareholders have a considerable amount of ownership in the company, via their 53% stake.

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. There are plenty of analysts covering the stock, so it might be worth seeing what they are forecasting, too.

Insider Ownership Of Mphasis

The definition of company insiders can be subjective and does vary between jurisdictions. Our data reflects individual insiders, capturing board members at the very least. 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 Mphasis Limited insiders own under 1% of the company. But they may have an indirect interest through a corporate structure that we haven't picked up on. It is a pretty big company, so it would be possible for board members to own a meaningful interest in the company, without owning much of a proportional interest. In this case, they own around ₹2.5b worth of shares (at current prices). It is always good to see at least some insider ownership, but it might be worth checking if those insiders have been selling.

General Public Ownership

The general public, who are usually individual investors, hold a 12% stake in Mphasis. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.

Private Company Ownership

Our data indicates that Private Companies hold 40%, 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.

Next Steps:

While it is well worth considering the different groups that own a company, there are other factors that are even more important. Take risks for example - Mphasis has 1 warning sign we think you should be aware of.

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.