Equity supply may hit Rs 6 trillion over next few months: Axis MF

Nearly Rs 5 trillion has been mobilised by ECM since 2022. This outpaces Rs 2.6 trillion inflows received by equity MF schemes during this period

Over Rs 2,000 crore was raised a day during the first half of the calendar year 2024. At over Rs 2.5 trillion, the equity capital market (ECM) issuance during the first six months of this year was the highest-ever semi-annual mobilisation. The deluge of equity paper will only rise in the coming months, predicts Axis Mutual Fund (MF). The money manager is expecting the domestic ECM to raise nearly Rs 6 trillion over the next few months.

“The pace of equity supply appears unlikely to slow down,” said Ashish Gupta, CIO, Axis MF in a note, preceding an upcoming supply of Rs 5.94 trillion. The break up of this includes Rs 93,000 crore by way of initial public offerings (IPOs), about Rs 2.77 trillion share sales by public investors in already listed companies and another Rs 2.24 trillion share sales in currently unlisted firms by private equity (PE) investors via the public markets.

This will be largely an encore of what has played out over the past six months but on a slightly bigger scale. About Rs 36,000 crore was mobilised via IPOs, which included several PE exits. Another, over Rs 2 trillion was raised by equity share sales in already listed companies by promoters, PE players and other public investors.

“PE selling is likely to accelerate. These funds currently hold Rs 2.77 trillion worth of stakes in listed companies, and of these over Rs 2.17 trillion are of more than three-year vintage, and therefore should be offered in the market sooner rather than later... In addition, these funds have investments of Rs 4.67 trillion in companies that are still private. Of this, Rs 3.7 trillion is of more than a three-year vintage. Assuming, 60 per cent of these are exited via the public market route and have multiple of invested capital of 2x, and 50 per cent will be sold in IPOs, these will be another Rs 2.24 trillion of potential supply,” said the note by Axis MF.

Since 2022, close to Rs 5 trillion has been mobilised by the ECM. This outpaces the Rs 2.6 trillion inflows received by equity MF schemes during this period. Besides MFs, foreign investors and direct investing by retail investors have helped absorb this supply.

Axis MF note says PE funds have arguably reaped the biggest benefits from rising equities. “In the past 15 months, they have also divested Rs 1.15 trillion worth of equity stakes in the secondary market, in addition to the stakes offered in the IPOs,” it said.

More recently, multi-national companies (MNCs) have divested or are on the verge of selling stakes in their Indian subsidiaries to “arbitrage the valuation gap in their home market versus India,” the note added.

“Robust and well-developed financial markets play a pivotal role in the mobilisation 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. Nevertheless, it’s important to recognise 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,” said Gupta.