The Indian stock market has witnessed a remarkable surge in the past 15 months, prompting a significant wave of stake sales by promoters, both local and multinational, as well as private equity (PE) funds. The surge in valuations has encouraged these entities to book substantial profits.
Massive Stake Sales by Promoters
In the last 15 months, Indian promoters have sold over ₹1.12 lakh crore worth of equity through the secondary market. This includes ₹82,005 crore in FY24 and ₹35,588 crore in the first quarter of FY25. This figure matches the net systematic investment plan (SIP) inflow to mutual funds during the same period, a significant increase from the ₹45,448 crore share sales by promoters in FY23. In May alone, promoters of 20 companies sold up to 20% of their stakes, raising ₹40,000 crore, according to a report by Axis Mutual Fund’s Chief Investment Officer, Ashish Gupta.
Minimal Reinvestment in Capital Expenditure
The report highlighted that only 6.6% (around ₹5,300 crore) of the ₹80,000 crore raised from the market was used for capital expenditure. The majority of these funds came from “offer for sale” transactions by PE investors and promoters, who directed the proceeds to their coffers.
Market Valuations Reach New Highs
The Sensex has surged by over 32%, or 21,000 points, reaching over 80,000 since April 2023. This substantial rise in stock valuations has encouraged PE funds and promoters to book profits. Over the past 15 months, stake sales by multinational company (MNC) parents amounted to nearly ₹74,000 crore, compared to ₹12,114 crore in FY23. Gupta noted that many MNC subsidiaries in India are trading at significantly higher multiples than their parent companies in their home markets.
Private Equity Funds Reap Benefits
Private equity funds have benefited the most from the rising equities, divesting ₹1.15 lakh crore worth of equity stakes in the secondary market over the past 15 months. This includes ₹79,812 crore in FY24 and ₹35,558 crore in Q1 of FY25. The accelerated pace of PE exits is reflected in the decline in net foreign direct investment (FDI) over the past few years, with FDI outflows increasing from ₹2.25 lakh crore to ₹3.40 lakh crore.
IPOs and Future Market Activity
The past 15 months have seen 91 initial public offerings (IPOs) raising ₹80,000 crore. Unlike in the past, most of this capital has not been for growth but rather for “offer for sale” transactions by PE investors and promoters. The IPO pipeline for the coming months is even larger, at ₹93,000 crore. Gupta predicts that PE selling is likely to accelerate, with funds currently holding ₹2.77 lakh crore worth of stakes in listed companies, of which over ₹2.17 lakh crore are more than three years old and are expected to be offered in the market soon.
MNC Subsidiaries Eyeing IPOs
MNCs are increasingly considering IPOs of their Indian subsidiaries to capitalize on the valuation gap between their home markets and India. For instance, Hyundai plans to divest 17.5% of its Indian subsidiary in an upcoming IPO, aiming to raise ₹25,000 crore for its parent company.
Market Outlook
Since April 2022, the aggregate supply response to increased retail equity flow has amounted to ₹4.84 lakh crore, including promoter stake sales, PE divestment, IPOs, and qualified institutional placements (QIPs). This figure represents nearly 185% of the net flow to equity mutual funds.
The consistent pool of domestic equity demand, driven by mutual fund SIPs, equity contributions from pension schemes like EPFO/NPS, and insurance, is estimated to grow to ₹3.30 lakh crore annually. This robust demand is a primary driver of the valuation premiums in the market, according to the Axis MF report.
