The pace of promoters selling stakes in their companies picked up in the first half of 2024, with deals worth $10.5-billion by the promoters of 37 companies on the NSE500, according to data by Kotak Institutional Equities.

In 2023, Indian promoters sold stakes worth $12.4-billion, and if the current pace continues this year, it will easily surpass the last year’s figures. Last year, stake sales by Adani group promoter entities boosted the overall figure.

Market valuations were at a premium now and promoters were taking the opportunity to encash that, said Siddarth Bhamre, Head of Research, Asit C Mehta. “Valuations are rich and if I have a substantial stake in the company, why not dilute it a little bit, still have control and raise a good portion of money?”, he added.

In 2024 so far, the selling was spread across sectors and the reasons for the sales range from business expansion, debt reduction to meeting minimum public shareholding norms. In the case of sale by non-promoter private equity firms, it has been tactical.

Incentivise promoters

Also read: How Airtel soared with its premiumisation strategy

Promoters of Mankind Pharma, for instance, sold stake to meet minimum public stake norms, Vedanta’s promoter sold stake to reduce debt, Cipla and Mahindra & Mahindra’s promoters sold stake for personal considerations and family holding adjustments, while in the case of Bharti Airtel and Indus Towers, it was for strategic realignment of the interest of promoters, Kotak said in its analysis.

“Equity markets go through cycles, and promoters often aim to time the market during an upcycle to maximise returns. They can then use these funds for other opportunities. In some cases, private equity firms are acting as promoters, who may need to rationalise their stake based on their fund profile and investment strategy,” said Prateek Indwar, Managing Director and Head Capital Markets, InCred Capital.

Bhamre added debt was expensive and raising money through stake dilution made sense now.

Future outlook of stake sales

The stake sales have whittled down promoter shareholding of companies and according to Kotak’s analysis, promoter holdings in the companies in the BSE 200 index has slipped to 38.8 per cent at the end of March from 42.1 per cent at the end of December 2022.

Indwar pointed out that promoters typically consider the minimum holdings they need to retain post-transaction before selling any stake. “After ensuring they maintain adequate control, they proceed with the stake sale.”

Domestic investors have been large buyers in Indian equities and their stake grew by 80 basis points to 23.5 per cent in the same period. In that time frame holding by foreign portfolio, investors have slipped to 20.5 per cent from 21.4 per cent.

Data on the stock exchanges has revealed that domestic mutual funds have been buyers in the case of bulk and block deals, grabbing what has been offloaded either by promoters or PEs.

Both Bhamre and Indwar said the current pace of promoter stake sales will sustain through the year provided valuations were ahead of earnings and gave them the opportunity of rich pickings.

Related Topics