Rs 5,94,320 crore: That’s the amount of equity supply that is likely to hit the market

According to his math, the total supply of equity papers that is waiting in the wings amounts to Rs 5,94,320 crore.

Even as stake sales by promoters and private equity fund have seen a sharp rise over the past two years, the pace of equity supply appears unlikely to slow down, said Ashish Gupta, CIO of Axis Asset Management, in his latest note Acumen.

According to his math, the total supply of equity papers that is waiting in the wings amounts to Rs 5,94,320 crore.

Here is how it adds up: The first category of supply comes from the IPO pipeline, which over the next few months could see issuances of Rs 93,000 crore. The second category is the supply of stakes in public companies by private equity funds. These funds currently hold Rs 2,77,000 crore worth of stakes in listed companies, and of these, over Rs 2,17,000 crore are of more than 3-year vintage and therefore should be offered in the market sooner rather than later, according to Gupta.

Also read: The cost-benefit analysis does not enthuse us to hedge: Ashish Gupta of Axis Mutual Fund

The third category is pre-IPO locked-in shares of the 91 recent IPOs, which are likely to hit the market over the next few months. Gupta thinks, given that on average these IPOs are up 79% from their issue price, there is a good chance this supply will hit the market. In addition, private equity funds have investments of Rs 4,67,000 crore in private companies. Of this, investments amounting to Rs 3,70,000 crore are of more than 3-year vintage. Assuming 60% of these take the exit via the public market route and command a 2x multiple of invested capital on listing, and 50 percent will be sold in IPOs, this will be another Rs 2,24,000 crore of potential supply.

Gupta did not elaborate on what impact this large quantum of supply might have on stock prices. “Robust and well-developed financial markets play a pivotal role in the mobilization of capital and contribute significantly to a country’s economic growth. A growing equity culture will aid in this becoming a reliable source of growth capital,” he noted.

“Nevertheless, it’s important to recognize that there are always contrasting perspectives: while some parties seek to acquire capital or invest, others aim to divest at favourable valuations. After all, it’s a fair game,” he said.

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