Promoter selling at six-year high, auto, capital goods drive bulk of selloff

Promoter have, so far, offloaded Rs 87,000 crore worth of equities this year.

Promoter selling is at a six-year high this year, as they have, so far, offloaded Rs 87,000 crore worth of equities included in NSE-500, a Kotak Institutional Equities report released on September 28 showed.

A sharp increase in sell-downs was also seen among private equity (PE) or venture capitalist (VC) investors compared to previous years.

So far, the bulk of promoter selling has been led by automobile and components, capital goods, electric utilities, IT services, and transportation sectors. During the 2018-23 period, insurance and IT services accounted for a large portion of promoter selling.

Stock-wise, promoters of Adani Group offloaded a whopping Rs 37,000 crore worth of equities, which is nearly 40 percent of the overall promoter selling in 2023.

Other promoters like those of Coforge pared stake worth Rs 11,000 crore, Sona Comstar Rs 5,900 crore and IndiGo’s promoters offloaded shares worth Rs 5,900 Rs 5,700 crore.

Decoding promoter, PE exits

The promoter selloff largely reflected strategic compulsions (debt management), whereas PE exits stemmed from tactical (price) considerations, analysts said.

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“A large portion of sales by promoters pertains to holding companies of promoters raising cash to manage ‘high’ purported debt in promoter holding companies (Adani Group companies, Vedanta). Another meaningful portion is due to the exit of one of the promoters from a company (HDFC Life, CIE India) for strategic reasons like portfolio rationalization,” the report added.

Explaining the accelerated PE exits, analysts said they used buoyant secondary market conditions to sell their holdings to institutional (foreign and domestic) and retail investors.

Domestic investors’ holdings rise 

As a result of the promoter sell-downs, analysts said the promoter holding in the BSE-200 index declined to 49 percent in the June 2023 quarter versus 50.3 percent in the December 2022 quarter.

The combined holding of domestic investors (inclusive of mutual funds, banking & financial institutions, and retail), however, increased by 90 basis points (bps) to 23.5 percent in the June quarter.

One basis point is one-hundredth of a percentage point.

The holding of foreign portfolio investors (FPIs), too, rose by 26 bps to 22 percent over the same period, while others (AIFs, PMS) climbed 31 bps to 6 percent.

For instance, after the promoters of Adani Energy Solutions sold a 5.9 percent stake, the FPI shareholding increased by 1.7 percent.

Similarly, in Coforge, the shareholding of FPI/MF/BFI/others increased to 3.5/7.8/2.5/0.2 percent after promoters sold 13.4 percent of their stake, data showed.

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