Promoter stake sales surge 93% in FY24, experts expect trend to continue

Stake sale by promoters is usually seen as a red flag.

Market experts aren’t worried despite stake sales by promoters through OFS (listed firms and IPOs), and bulk/block deals jumping over 93 percent in FY24 to Rs 1.57 lakh crore, from Rs 81,545 lakh crore in FY23. They expect the trend to continue as the benchmark indices, the Nifty and Sensex, hit fresh highs in the first week of FY25.

Stake sale by promoters is usually seen as a red flag. However, there’s a difference between a government and a private promoter's sell-off. The government offloads its stake in public sector companies based on its fund-raising plans — that’s not necessarily a bearish signal for the stock. But when an individual promoter or promoter group cuts their stake in a private company, then that raises concerns about the promoters’ commitment towards the company.

High promoter stake exudes stability and indicates the promoter's confidence in the company. “However, we need to understand the reason for the sale. There have been several instances where promoter stake sales have been to domestic institutions and FIIs. This sends a positive signal to the markets,” said Prashant Rao, Director and Head of Equity Capital Markets, Anand Rathi Investment Banking.

Also Read: Promoter selling no longer a red flag; these 10 stocks have doubled despite stake sale

According to Prime Database, the dilution of promoter stake through an OFS (offer for sale) via stock exchanges jumped 102 percent to Rs 22,508 crore in FY23-24. Of this, government divestment accounted for Rs 13,704 crore, or 60 percent of the overall amount, with the Coal India OFS being the largest.

Reduction of promoter stake via the OFS component of  IPOs tripled to Rs 18,069 crore in FY23-24, up from Rs 6,371 crore in the year-ago period. Stake sale through bulk or block deals surged 82.55 percent to Rs 1.16 lakh crore in FY23-24, from Rs 64,015 crore in FY22-23.

Around 76 Indian companies raised a total of Rs 61,915 crore through main board IPOs in FY23-24, which is 19 percent higher than the Rs 52,116 crore mobilised by 37 IPOs in FY22-23.

The fresh capital raised via IPOs in FY23-24 was Rs 28,818 crore, or 47 percent of the total, and the rest was offer-for-sale by promoters, PEs / VCs, and others.

"Promoters are selling because they are getting good valuations in a bull market," said  Purvesh Shelatkar, Head of Institutional Broking at Monarch Networth Capital.

Rao cautioned investors that promoters offloading a small stake should not raise alarm bells for other shareholders, but if they have been paring their stake continuously over the years then, it does warrant a closer look. “It's pertinent to look at the fundamentals of a company, its growth potential, and valuations, rather than looking only at the reduction in promoter shareholding,” Rao said.

In FY23, the largest OFS was by Life Insurance Corporation of India, while in FY24, the most substantial OFS was by Mankind Pharma, followed by Tata group’s first public offer in nearly two decades, that of Tata Technologies.

In FY23, the most significant exit through bulk or block deals was by Max Healthcare Institute, while in FY24, the largest such deal was by Coforge.

In FY23, the largest OFS was by Axis Bank while in FY24, the top OFS was of Coal India.

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