$3.9 billion: Block deals gain momentum in June, hit three-year high

Activity in block deals is seen as a precursor to growth in the IPO market, say bankers

Block deals gained momentum in June on the back of buoyant equity markets as $3.9 billion worth of shares changed hands — the highest in three years after May 2020 when $4.7 billion worth such deals were struck.

Some of the companies that were involved in block trades are Coal India, Shriram Finance, HDFC Life, Policy Bazaar and Kalyan Jewellers, among others. A block deal is when 500,000 shares or at least Rs 5 crore worth of shares changes hands in a single transaction. These shares are typically bought by institutional buyers. 

“Whenever momentum shifts in equity markets and flows come back, the first deals that get executed are secondary exits from sponsors and promoters, who have been waiting on market windows for monetisation,” said Debasish Purohit, managing director (MD) and co-head India investment banking, Bank of America.

“As confidence comes back in the market, you do see these (block deal) activities pick up first before longer lead items like IPOs (initial public offerings) come to the market. It generally marks the beginning of a positive cycle from a deal-making perspective,” Purohit told Business Standard.

Bank of America has more than 30 per cent market share, having raised $1.1 billion through four blocks — Policy Bazaar, HDFC AMC, HDFC Life and Timken.

On Wednesday, benchmark indices posted strong gains for a second-straight day to hit record highs — on the back of strong FPI inflows — with the Sensex breaching the 64,000-mark for the first time and the Nifty50 topping the 19,000 level in intraday trade.

“Block and bulk deals interest has been driven by strong flows from FPIs and domestic investors. Also, investors prefer to invest in companies, which they are holding and tracking for a long period. Their participation indicates the great breadth and depth of the market,” said V Jayasankar, MD & member of board, Kotak Investment Banking.

Bankers said the activity in block deals is seen as a precursor to the growth in the IPO market.

“It (block deal) helps because it gives confidence to longer lead products like IPOs to test the market. Companies and sponsors are getting prepared for IPOs. Since these processes take long, I think we will see IPOs coming back in greater volumes towards the end of 2023 and early 2024,” Purohit said.

After hitting record highs in 2021-22, funds raised via IPOs halved to about Rs 52,000 crore in FY23 — of which around 40 per cent or Rs 20,000 crore was raised by Life Insurance Corporation.

According to Jayasankar, the success of Mankind Pharma IPO has helped the IPO market revive. “The IPO market is building momentum and we may see a longer window,” he said.

A block deal is also an opportunity for private equity players to monetise their investments.

“India has seen a rising trend of private equity investments over the last several years.

As the investment cycle matures, it is normal for PEs to monetise their stakes, with IPOs and block trades being the most popular routes.

Public market exits were challenged for the last few quarters, but with capital markets looking up, it is but natural to expect private equities to try and use the current markets to monetise a part of their holdings,” Purohit said.

Attractive valuations are another reason why private equity players exited via block deals, said Jayasankar.

“Foreign investors have also been turning confident once again in India’s long-term growth story and are persistently increasing exposure to companies positioned well. At the same time, the robust valuations in the Indian market have allowed existing PE investors to exit and encash their long-term investments. Overall, we see the Indian equity market, including block and bulk deals segment, to remain healthy,” Jayasankar said.