On Thursday, came the flurry of news about promoters and private equity investors selling substantial chunks of their stakes to mutual funds (MFs) and foreign institutional investors (FIIs), even as the market indices are breaching all-time highs. The Fairfax group is set to sell a 9.72% stake in CSB Bank, aiming to raise approximately Rs595 crore. The sale, involving 1.68 crore shares at a floor price of Rs352.4 per share, is expected to occur through block deals today. This move by Fairfax, an entity backed by Prem Watsa, is part of a broader trend where promoters are capitalising on favourable market conditions to monetise their holdings.
This sale occurs amid a surge in promoter activity in 2024. Promoters have already diluted stakes worth Rs64,700 crore, nearing the 2020 peak of Rs78,500 crore. In the past two months alone, promoters of over 200 companies have sold stakes valued at Rs33,000 crore, indicating they are leveraging high valuations to book profits, according to The Economic Times.
As the market rises to new highs, retail investors are increasingly pumping funds directly or through MFs. In contrast, promoters and private equity funds are cashing out. For instance, Vodafone group recently sold an 18% stake in Indus Towers for Rs15,300 crore, and Blackstone offloaded a 15.08% stake in Mphasis for Rs6,735 crore. ZF group sold a 7.5% stake in ZF Commercial Vehicle Control for Rs2,193 crore, and Fosun Pharma sold Rs1,754 crore worth of shares in Gland Pharma.
On 26 June 2024, CE Info Systems, known as MapMyIndia, saw 6.1 lakh shares, representing 1.1% equity worth Rs142.6 crore, change hands at Rs2,332 per share. This transaction reflects the high valuation multiples in the current market, with MapMyIndia trading at a price-to-earnings multiple of 92 times. Interestingly, some of the practices accompanying this and other transactions are questionable. Two days ago, Goldman Sachs released a report declaring a possible 40% upside for CE Info Systems. The stock pops 20% and remains frozen in the upper circuit. Then the next day, the promoter appears in an interview on a TV channel to discuss the business prospects. The stock goes up another 5%. And the third day, the promoter sells the stock.
Among the other recent sales by promoters was Mala Relan selling 25 lakh shares at Rs1,996 per share of Sharda Motor Industries worth Rs499 crore, reducing her stake in the company to 8.76% as on 31 March. The eager buyers were Nippon India Mutual Fund (MF), Edelweiss MF, HSBC MF, ICICI Prudential MF, and Axis Smallcap Fund. Sixth Sense India Opportunities II, Westbridge Alternative Investment fund (AIF) I, Jwalamukhi Investment Holdings, Infinity Consumer Holdings, and Konark Trust were sellers of 1.27 crore shares at Rs502 each of Hindustan Foods worth Rs638.4 crore in a block deal. The buyers were HSBC MF, Morgan Stanley Asia Singapore PTE, Emkay Emerging Stars Fund V, and Nippon India Equity Opportunities AIF.
Rashmi Chowdhary, part of the promoter group of Titagarh Rail Systems, sold 26.93 lakh shares at Rs1,618 apiece worth Rs435.8 crore. The buyers were BlackRock Global Funds and BNP Paribas financial markets. Promoter Affle Holdings PTE sold 25 lakh shares at Rs1,290 each of Affle (India) Ltd worth Rs322.5 crore to The Monetary Authority of Singapore.
Commenting sarcastically on the flurry of such deals, veteran investor Samir Arora wrote on social media X, “In normal situations: foreigners and PE funds are selling let us negotiate a good price to buy. These days: foreigners and PE funds are selling. We will deliberately give them better prices so that they know we don't care for them. We can pay them even more than they dreamt- what do they think of themselves, that we don't have money to take them out.” Only time will tell whether the promoters have been clever in disposing extremely highly-valued shares of small-cap stocks to eager institutional buyers.
