Over $2 bn exodus: PEs, promoters swiftly reacted before poll verdict

Share sales hold breath for government clarity

Global private equity (PE) majors and promoters successfully offloaded shares worth over $2 billion (Rs 17,000 crore) before the stock market was thrown into turmoil by the surprise election outcome.

Between May 15 and May 31, 14 companies witnessed block deals worth over $50 million (Rs 420 crore), mainly by PE funds and promoters. The sales occurred amid market optimism, fuelled by expectations that Prime Minister Narendra Modi’s Bharatiya Janata Party (BJP) would secure a comfortable majority in the Lok Sabha elections.

On May 27, the S&P BSE Sensex breached the 76,000 mark for the first time ever before retracting some gains, only to reclaim the level on June 3 after exit polls indicated that the BJP-led National Democratic Alliance would secure two-thirds of the 543 seats in the Lower House of Parliament.

Stock prices plummeted on June 4 after the BJP struggled to even cross the halfway mark, halting block deal activity.

“A few weeks before the elections, concerns about volatility arose, and markets had significantly run up. PE players and promoters seized the opportunity to dilute their stake,” said Venkatraghavan S, managing director of investment banking at Equirus.

“Markets were at an all-time high, prompting promoters and PE players to monetise part of their stake. Many opted to sell just before the elections to secure the highest possible price,” added Pranjal Srivastava, partner in investment banking at Centrum Capital.

Among companies that saw big exits by PEs in the latter half of last month are health insurer Star Health & Allied Insurance Company, where Apis Partners, Madison India Capital Management (MIO Star), and Roc Capital sold shares worth Rs 2,211 crore; WestBridge, Steadview, and JIH sold Rs 1,347 crore worth of shares in home loan company Aptus Value Housing Finance India; a Warburg Pincus affiliate firm sold shares worth Rs 1,073 crore in tyre manufacturing firm Apollo Tyres; and TPG sold shares worth over Rs 950 crore in RR Kabel, a cable and wiremaker.

The firms where promoter entities pruned their stakes include pharmaceutical major Cipla (deal worth over Rs 2,725 crore), road developer IRB Infrastructure Developers (Rs 1,445 crore), and multinational automotive component maker Timken India (Rs 1,253 crore).

The buyers in most transactions were largely domestic mutual funds, insurers, and foreign portfolio investors (FPIs), such as pension funds and sovereign wealth funds. Following market recovery over the past two days, shares of a few companies are trading above their block deal price, while some are marginally lower.

Market players said the deal pipeline remains robust, and activity will resume once there is a new government at the Centre.

“Nothing much has changed. The same government has been formed. There will be a small blip in the deal pipeline. If the policies are in line with expectations, things will start looking rosy in a few months. The direction is positive because liquidity is still coming to the market," said Srivastava.

Large institutional investors prefer buying shares during block sales as it allows them to acquire large quantities without disrupting the share price.

“Issuers might delay rolling out their deals by a week or so to ensure markets are stable, but their plans will largely remain intact. Blocks have happened because some PE players have achieved their price targets or their lock-ins are expiring. Some promoters want to diversify by setting up family offices, so they are liquidating their stakes and creating a corpus for themselves. The deal flow will continue, but returns might be tempered," added Venkatraghavan.