At a time when the benchmark indices are touching new highs on a regular basis and the markets are showcasing ample buoyancy, institutional investors are using the block deal route to book profits on their investments.
As per data from Prime Database, the five-month period between January and May saw a total of 392 block deals with a cumulative value of Rs 86,036 crore. This is significantly higher than the previous five-month period – between August and December 2023 – when 226 block deals were struck with a combined value of Rs 54,351 crore.
Further, even if one compares the first five months of the current calendar year with the corresponding period last year, the spike is significant as January-May 2023 saw a mere 102 deals worth Rs 27,840 crore.
To be sure, the number of block deals is a better metric to compare as the value of deals is a factor of the change in market valuations.
Market participants attribute this trend to private equity players who have been consistently selling blocks of shares on which they have been sitting on significant notional gains.
“Many PE players are booking profits and looking at reinvesting the proceeds in early-stage start-ups where there is more potential to earn multiples rather than staying invested in matured companies with lesser growth potential,” said a senior official of a domestic brokerage firm, wishing not to be named.
Some of the stocks that saw a high number of blocks changing hands were Bank of Baroda, Cipla, Canara Bank, Aurobindo Pharma, TCS, and Titan among others.
Narendra Solanki, head of research at Anand Rathi Investment Services, believes that the surge in blocks deals can be attributed to the increased appetite for small- and mid-cap stocks.
Many companies in this universe do not have a huge float and liquidity as well and hence blocks are the only way to get a large chunk of shares, he said.
The Nifty Midcap 100 index has rallied 18.58 percent in the current calendar year till date while the Nifty Smallcap 100 index has surged 19.15 percent in the same period. Both the indices have outperformed the benchmark Nifty 50 that is up 7.93 percent in CY2024.
Interestingly, the first month of the current calendar year saw a huge spike with 231 blocks – January 2023 saw a mere 21 block deals – with market participants attributing the surge to the overall selling mode of foreign portfolio investors (FPIs).
“Block deals were way higher in January because foreign institutional investors sold heavily and lot of domestic institutional investors picked up their stake,” said Solanki. Data from NSDL shows that FPIs were net sellers at Rs 25,744 crore (a little over $3 billion) in January.
A section of market players also feel that the number of block deals typically witness a spike towards the end of any financial year as promoters usually indulge in such trades.
“Typically, the traction for block deals begins to build towards the end of financial year, allowing promoters to reduce their stakes when liquidity is higher,” said Pankaj Karde, Head of Institutional Equities at Asit C Mehta Investment Interrmediates.
TVS Holdings' promoter group - Sundaram Finance Holdings Limited sold around 202,321 shares in the company via a block deal on March 28.
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