The trend of promoters selling stake in companies gathered pace in the first half of CY24, and is on track to go past the 2023 cumulative stake sales, according to a note by Kotak Institutional Equities.
In the first six month of 2024, promoter entities of 37 companies sold shares worth $10.5 billion, or Rs 87,400 crore. The Kotak research note projects that this number is the highest in the past five years, and is poised to cross the total stake sales clocked in 2023, which was at $12.4 billion, or close to Rs 1 lakh crore. This year, stake sale by just four companies - TCS, Interglobe, Indus Tower and Mphasis - totalled up to almost half of the amount.
While we saw Adani Group entities selling a significant part of shares last year, in 2024, the mix has been far more varied, noted the Kotak report.
Promoters Selling
The promoter holding in BSE 200 Index has fallen to 38.8% in March 2024 quarter, as against 42.1% in the Dec 2022 quarter, data cited by Kotak showed. However, domestic mutual funds have siezed the opportunity to significant increase investment in these companies.
Why the Stake Sale
The momentum in the stock markets isn't being seen as the only reason that promoters have chosen to offload shares, according to the note. Factors like business expansion, minimum public shareholding criteria (Mankind), debt reduction (Vedanta), promoter family holding adjustments and personal considerations (Cipla) as also strategic realignment (Bharti Airtel, Indus Towers) have been key factors, said the Kotak note.
OFS Route is Hot
PE and VC investors have offloaded shares through both primary as well as secondary market routes, with OFS amounts significantly exceeding fresh issuances in recent years, according to the note.
A higher stake 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,” Prashant Rao, Director and Head of Equity Capital Markets, Anand Rathi Investment Banking said in April this year.
Infact, “offloading a small part of their holding in the company, like 4-5 percent, is not something to get worried about,” Moneycontrol cited an investment banker in February this year, on the condition of anonymity.
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