Indus Towers, Vedanta, IndiGo, Polycab, Bharti Airtel: Why are promoters selling shares?

Block deals: The recent selling of stakes by promoters in domestic listed companies reflects strategic compulsions in a few cases and tactical considerations in others and that the current bullish market conditions may not be a primary consideration for most promoters, given the long-term investment horizon of founders, Kotak Institutional Equities in a strategy said.

Promoters of 37 NSE 500 companies sold Rs 87,400 crore ($10.50 billion) in the first six months of 2024. The figure was the highest in the past five years and is on track to beat the figure of Rs 99,600 crore ($12.40 billion) in 2023, which was dominated by stake sales by Adani Group promoters in various Adani Group companies.

Indus Towers Ltd, Vedanta Ltd, Interglobe Aviation Ltd (IndiGo), Polycab and Bharti Airtel Ltd are some of the companies, where promoters sold stakes recently.

Promoters of Indus Towers, IndiGo, Tata Consultancy Services and Mphasis together sold over $5 billion worth shares. Other stake sales this year included that from Whirlpool of India, Bharti Airtel, Cipla, Mahindra & Mahindra, Gland Pharma, PB Fintech and Mankind Pharma promoters.

"The key considerations include (1) business expansion, (2) compliance with minimum public shareholding (MPS) norms (Mankind), (3) debt reduction (Vedanta), (4) promoter family holding adjustments and personal considerations (Cipla, Mahindra & Mahindra) and (5) strategic realignment of the interests of promoters (Bharti Airtel, Indus Towers)," it said.

Automobiles and components, diversified financial, insurance, IT services and telecommunication services sectors accounted for the bulk of promoter sales in 2019-24.

Kotak Institutional Equities noted that PE/VC investors have made exits through both the primary (IPOs) and secondary (block deals) market routes. PEs have used bullish secondary
market conditions to sell their stakes, either in full or in part, which is entirely logical for them, given the limited period and nature of their investment mandates, it said.

OFS amounts have significantly exceeded fresh capital issuance amounts in the past few years, it added.

"We would note that private promoter holding in the BSE-200 Index has declined to 38.8 per cent in the Mar-24 quarter from 42.1 per cent in the Dec-22 quarter, consequent to the large promoter sell-down. The combined holding of domestic investors (MF + BFI + retail) has increased by 80 bps to 23.5 per cent in the March 2024 quarter from 22.6 per cent in December 2022 quarter. The holding of FPIs has declined to 20.5 per cent from 21.4 per cent over the same period," Kotak said.

The domestic brokerage said the changes also reflect large inflows into domestic equity mutual funds, which, in turn, have invested in ‘available’ opportunities, including promoter stake sales and PE exits.