Promoters sold stake worth ₹87,000 crore in H1 2024, highest in 5 years

Promoter stake sales in the Indian equity market have reached multi-year highs, driven by various strategic considerations such as debt reduction, compliance with minimum public shareholding norms, and expansion initiatives. Retail investors, primarily through mutual funds, have been significant buyers of the stake sold by promoters.

According to a recent report by domestic brokerage firm Kotak Institutional Equities, promoters of 37 NSE 500 companies sold ₹874 billion ( ₹87,000 crore) in the first half of the current year, marking the highest level in the past five years.

This trend is poised to surpass the ₹996 billion (nearly ₹one lakh crore) recorded in 2023. Notably, the Adani Group promoters led the promoter stake sales in 2023 across various Adani Group companies.

Automobiles and components, diversified financial, insurance, IT services and telecommunication services sectors accounted for the bulk of promoter sales, the report stated.

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In 2019, the value of promoter stake sales reached to ₹241 billion. This figure increased to ₹527 billion in the subsequent year but moderated over the next two years, reaching ₹378 billion in 2021 and ₹412 billion in 2022. However, there was a notable acceleration in 2023, with the value surging to ₹996 billion.

The brokerage attributes the various reasons for the acceleration in promoter (non-PE) sales but notes that the current bullish market conditions would not be a primary consideration for most promoters given the long-term investment horizon of promoters/founders.

It highlights the considerations that include business expansion, compliance with minimum public shareholding (MPS) norms (Mankind), debt reduction (Vedanta), promoter family holding adjustments and personal considerations (Cipla, MM), and strategic realignment of the interests of promoters (Bharti Airtel, Indus Towers).

In 2024, significant promoter deals included Indus Towers selling a stake worth ₹153 billion and IndiGo selling a stake worth ₹102 billion. Additionally, TCS, Mphasis, Bharti Airtel, Whirlpool, Motherson, and Cipla collectively divested stakes totaling ₹380 billion.

OFS dominate IPOs On the other hand, the brokerage pointed out that PE/VC investors have made exits through both the primary (IPOs) and secondary (block deals) market routes. It said the PEs have used bullish secondary market conditions to sell their stake, either in full or in part, which is entirely logical for them, given the limited period and nature of their investment mandates.

The brokerage highlights that offer-for-sale (OFS) volumes have significantly outpaced fresh capital issuances in recent years.

Decline in promoter holdings and rise in domestic investor ownership The report also notes a decline in private promoter holdings within the BSE-200 index, dropping to 38.8% in the March 2024 quarter from 42.1% in December 2022.

Concurrently, the combined holding of domestic investors (including mutual funds, financial institutions, and retail investors) increased by 80 basis points to 23.5% in the March 2024 quarter from 22.6% in December 2022.

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The brokerage also notes that FPI holdings declined to 20.5% from 21.4% over the same period. These shifts reflect significant inflows into domestic equity mutual funds, which have capitalised on opportunities arising from promoter stake sales and PE exits.