Selling by promoters and PE/VC investors has increased sharply in 2023 compared to previous years.
A report by Kotak Institutes Equities noted that promoters have offloaded nearly Rs 87,000 crore (about $10 billion) in equities this year, the highest level in the past six years and 2.2 times the previous year. Adani Group promoter sales stood at Rs 37,000 crore, accounting for almost 40% of total promoter sales this year.
Automobiles and components, capital goods, power utilities, IT services and transportation sectors accounted for the bulk of promoter sales so far this year, while insurance and IT services accounted for a large share of promoter sales in 2018-23.
“We will attribute only a small portion of promoter sales to bullish stock market conditions. A significant portion of promoter sales involves promoter holding companies raising cash to manage promoter holding companies (Adani Group of Companies, Vedanta) So-called ‘high’ debt. Another significant segment is the exit of one promoter from a company (HDFC Life, CIE India) due to strategic reasons (portfolio rationalization),” the report said.
As a result of these sell-offs, promoter holdings in the BSE-200 index have declined from 50.3% in the December 22 quarter to 48.8% in the June 2023 quarter, while holdings by domestic investors have increased by a combined 90% as of 2023 At the end of the June quarter, the ratio rose to 23.5%.
During the same period, holdings of FPIs increased marginally by 26 basis points to 21.7%, while holdings of other funds such as AIFs and PMS increased by 31 basis points to 6%.
The sell-off has been concentrated in the context of promoter sales, but as far as private equity investors are concerned, the sell-off is widespread across sectors. The sell-off by promoters largely reflects strategic imperatives (debt management) and tactical (price) considerations by private equity firms, the report added.
Vivek Soni, partner and country leader, EY India Private Equity Services, said: “The Indian stock market is near all-time highs, which may prompt promoters to sell some of their listed shares. Succession issues and the need for funds to invest in other businesses may also accelerate this trend. Many promoters were also slowly accumulating stakes between 2020 and 2023 when valuations were weak and their businesses were undervalued by the market. The current high market offers an opportunity to sell off some non-core holdings at attractive valuations good opportunity.
“Private equity investments may span multiple years, but exits tend to be concentrated in periods when multiple factors lead to above-average market valuations.
“The recent sell-off by promoters and private equity firms also points to the increasing depth and liquidity of the Indian market, which makes it possible to execute large transactions at minimal discounts.”