Promoters Rushed To Capitalise As Markets Scaled Record Highs In 2023 — In Charts

Share sales by promoters of Indian companies more than doubled this year as the markets scaled new highs.

Promoters have sold a record stake worth Rs 1.14 lakh crore in 2023, a jump of about 161% from the previous year, according to data from Prime Database.

As market and valuations surged, private equity investors and promoters have been unlocking their value at the right opportunity, according to Mataprasad Pandey, vice president at Arete Capital Services.

In September this year, Zerodha's Nikhil Kamath said this is a particularly "scary metric". "Can't be a good sign, if the equity you are buying in a company is being sold by the people running that company," Kamath said on social media platform X, formerly Twitter.

The rising trend of stake sales by promoters coincides an increase bulk and block trades in the secondary market. These are at a record high of Rs 3.82 lakh crore in 2023, with 13,461 deals as of Dec. 12. However, the number of issuances has dipped 10%, according to data from Prime Database.

"We are seeing 3-4 QIPs every day, block deals are happening left, right and center, and these are happening after stocks have run up 30 to 50 times...," Siddhartha Bhaiya, managing director and chief executive officer of Aequitas Investment Consultancy Pvt., told NDTV Profit. "It is scary to me as far as what is happening to broader markets."

It's not just bulk and block deals. Even the rush for initial public offerings has been there for the same reason, Pandey said. "If we observe most of the IPOs are of offer-for-sale nature, i.e. not a fresh fund raise which is the only exit opportunity to existing shareholders."

Year-to-date, the benchmark indices Nifty and Sensex have jumped about 17.9% and 16.5%, respectively. The Nifty Midcap 100 and Smallcap 100 outpaced the gains, rising 42% and 51%, respectively.

The main reason for the increasing stake sales is for the promoters to cash in on the current market rally, according to Pandey. "Till market valuations are supportive, this trend may continue and won't last too long."

When the market hit new highs during November and December, both foreign and domestic promoters along with major investors of companies increasingly pared stake.

An NDTV Profit analysis of major promoters' stake sales for the last two months shows that deals worth at least Rs 23,000 crore took place during the period.

Warburg Pincus Plc. sold about 19.8% stake in Computer Age Management Services Ltd., while General Atlantic Singapore and three promoters of Mankind Pharma Ltd. offloaded 10% and 1.6% stake, respectively.

But Pandey said that there is nothing to be concerned about as those who have been looking for opportunities to exit are reducing stake.

As an investor, he said, "we have to understand and analyse every investment and must stay away from investments where not much value is seen in the business".