The big jump in valuations that the market and the companies are now commanding is enticing an increasing number of promoters – both local and multinational – and private equity (PE) funds to divest stakes and book bumper profits.

In the last 15 months, Indian promoters have sold over Rs 1.12 lakh crore (Rs 82,005 crore in FY24 and Rs 35,588 crore in the first quarter of FY25) of equity through the secondary market. This is equivalent to the net systematic investment plan (SIP) inflow to mutual funds during this period. This is a big rise from Rs 45,448 crore share sales by promoters in FY23. In May alone, Indian and MNC promoters of 20 companies have sold up to 20 percent of their stakes in the secondary market raising Rs 40,000 crore, according to a research report prepared by Axis Mutual Fund Chief Investment Officer Ashish Gupta.

The report also said only 6.6 per cent – around Rs 5,300 crore – of Rs 80,000 crore raised from the market was used for capital expenditure as two third was “offer for sale” from private equity investors and promoters with money going to their coffers.

The Sensex jumped by over 32 percent, or 21,000 points, to over 80,000 since April 2023, sending stock valuations to new highs. This had prompted PE funds and promoters to book profits. Stake sale by MNC parents in past 15 months amounted to nearly Rs 74,000 crore (Rs 46,822 crore in FY24 and Rs 27,118 crore in Q1 of FY25) as against Rs 12,114 crore in FY23. “This is not surprising with nearly a dozen MNC subsidiaries in India today trading at four times the multiple their parents trade at in the home market,” Gupta said. Secondary market sales by promoters and of private equity stakes since April 2022 has been Rs 4.42 lakh crore compared to gross SIP flows of Rs 3.96 lakh crore and overall net inflow of Rs 5.02 lakh crore into mutual funds, the report said.

Gupta’s report said private equity funds have arguably reaped the most benefits from rising equities. In the past 15 months, they have also divested Rs 1.15 lakh crore (Rs 79,812 crore in FY24 and Rs 35,558 crore in Q1 of FY25) worth of equity stakes in the secondary market, in addition to the stakes offered in the initial public offerings ( IPO). The accelerated pace of PE exits is reflected in the decline in net FDI over the past few years, with FDI outflows rising from Rs 2.25 lakh crore to Rs 3.40 lakh crore, the report said.

Festive offer

The 91 IPOs that have come to the market in the past 15 months have raised Rs 80,000 crore. “Unlike in the past most of this raise has not been growth capital. Two-thirds of these have been “offered for sale” from private equity investors and promoters. Of the remaining one-third, only 20 per cent of IPO proceeds are intended for capex and another 15 per cent raised by financial companies to augment their lending capabilities,” Gupta said.

The IPO pipeline over the next few months is larger at another Rs 93,000 crore. “Private equity selling is likely to accelerate. These funds currently hold Rs 277,000 crore worth of stakes in listed companies and of these over Rs 217,000 crore are of more than 3-year vintage and therefore should be offered in the market sooner rather than later. In the coming months, pre-IPO locked in shares of the 91 recent IPOs will also come to the market given that on average these IPOs are up 79 percent from their issue price,” the report said.

In addition, these funds have investments of Rs 4.67 lakh crore in companies that are still private. Of this, Rs 3.70 lakh crore is of more than three-year vintage. Assuming, 60 per cent of these are exited via the public market route and have MOIC (multiple of invested capital) of two times, and 50 per cent will be sold in IPOs these will be another Rs 2,24,000 crore of potential supply, it said. Stake sale by MNC parents in past 15 months amounted to nearly Rs 74,000 crore. This is not surprising with nearly a dozen MNC subsidiaries in India today trading at four times the multiple their parents trade at in the home market, the report said. More recently, MNCs are considering to IPO of their Indian subsidiaries to raise funds to arbitrage the valuation gap in their home market vs India. Hyundai plans to divest 17.5 percent of its Indian subsidiary holding in its upcoming IPO and raise Rs 25,000 crore for its parent. The report said since April 2022, the aggregate supply response to the increased retail equity flow has amounted to Rs 4.84 lakh crore. This includes Rs 1.86 lakh crore promoter stake sales, Rs 1.15 lakh crore from PE divestment, Rs 80,000 crore raised via IPOs and Rs 1.03 lakh crore through QIPs. This figure is nearly 185 percent of the net flow to the equity mutual funds.

“Consistent pool of domestic equity demand, an aggregate of mutual fund SIPs, equity contributions from pension schemes like EPFO/NPS, and insurance, is estimated to grow to Rs 330,000 crore ($40 billion) annually. This is also the primary justification for the valuation premiums in the market,” the Axis MF report said.