Promoters cash in on surging stock market by offloading stakes worth Rs 1.1 trillion
The recent surge in the stock market has prompted many promoters and investors to capitalize on the higher valuations by divesting part of their shareholding over the past 15 months. According to data, Indian promoters raised a massive Rs 1.12 trillion by selling shares through secondary market transactions.
Between April 2023 to June 2024, promoters offloaded stakes worth Rs 82,005 crore in the financial year 2023-24. In the first quarter of the current financial year alone (April-June 2024), another Rs 35,588 crore was raised through such sales. This level of selling is significantly higher than the amount of Rs 45,448 crore achieved in the entire previous financial year.
Not just domestic promoters, multinational corporations (MNCs) have also realized handsome returns by trimming their holdings in listed Indian subsidiaries. Their secondary market sales totaled close to Rs 74,000 crore in the reference period. This is understandable considering many foreign subsidiaries now trade at much higher valuations in India compared to their parent companies in overseas markets.
Private equity firms and investors have been equally active in cashing out of portfolio holdings. According to reports, such investors have exited positions worth Rs 1.15 trillion in the secondary market alone over the last 15 months, over and above any listing proceeds via initial public offerings (IPOs). This along with other capital transactions has resulted in a decline in net foreign direct investment inflows into the country.
The sharp rally in domestic stock prices, with key indices rising more than 30%, has provided promoters and investors an incentive to book profits. Several companies that conducted IPOs in this period now trade substantially above their issue price, allowing pre-IPO investors to monetize part of their investments at a handsome gain. Going forward, more such transactions can be expected as valuation multiples remain elevated.
While providing an avenue for partial stake sales, the buoyant market has also supported a large number of IPOs raising around Rs 800 billion in fresh capital. A majority of these issues however comprised offers for sale by existing shareholders rather than direct fundraising by companies. With a strong pipeline of upcoming IPOs and ample private holdings in both listed and unlisted scrips, the equity supply situation remains conducive for the demand-driven market.
