Sharp surge in markets boosts equity share sales of listed companies

A sharp surge in the market from this year’s lows in June is stoking equity-share sales at listed companies.

So far this month, block deals of nearly Rs 47,000 crore have been executed — the most since October 2021, when markets made their lifetime highs. While deals across the board are getting executed, start-ups and financial sector firms are leading the charge.

Some of the large transactions that have got executed this month include private equity firm KKR’s entire 27 per cent stake divestment in Max Health, Uber’s entire 7.8 per cent stake sale in Zomato, and abrdn’s paring of 5.6 per cent stake in HDFC Mutual Fund.

Market players said a reversal in foreign portfolio investor flows since July is underpinning deal-making at listed firms.

Block transactions are privately negotiated deals carried out under a special trading window provided by stock exchanges. Such deals are typically done at a discount-to-market price.

Last calendar year, an average Rs 47,000 crore worth of block deals got executed each month, thanks to healthy liquidity conditions. Deal-making took a hit this year due to volatile market conditions amid unwinding of the post-pandemic stimulus measures by the US Federal Reserve (Fed).

During the first half of calendar year 2022, an average Rs 23,000 crore worth of block deals got executed each month, shows the data provided by stock exchanges.

Block deal activity slumped in June to just Rs 10,500 crore when the benchmark indices had dropped to their lowest levels in 13 months.  From this year’s lows on June 17, the benchmark Sensex and the Nifty have rallied 17 per cent.

“The rate hike by the Fed and fears that the US economy may go into recession led to significant volatility in global markets, which affected India as well. From May to July, nothing happened in the markets. Investors were trying to figure out the bottom of the market. The July commentary of the Fed gave the signal that the US economy perhaps had seen the worst and the prospects of recession were much lower. Investors started seeing green shoots, and the global equity market recovered. In 2020, initial public offerings started happening with a lag of a month or two after the blocks started. This time, too, we could see similar things play out but with far less euphoria than what we witnessed in 2020/2021,” says V Jayasankar, senior executive director and head of equity capital markets, Kotak Investment Banking.

Block deals help a large shareholder divest a huge chunk of shares to large institutional buyers. The buyers get an opportunity to buy a sizeable stake in a listed company. Buying a similar quantity of shares under normal circumstances is challenging on a signal day and can lead to price distortion. Therefore, a block deal can be a win-win for both the buyer and the seller.

Market players said a healthy block deal activity can be a harbinger of healthy market conditions.

“After the Covid-19 lows in March 2020, the revival in the market was first signalled by block deal activity. Typically, institutional investors participate in large share sales whenever the underlying market conditions are healthy or the medium-term outlook is positive. The latest round of activity can partly be attributed to pent-up supply getting cleared and partly a bullish outlook for the Indian markets over a two-/three-year horizon,” said an investment banker.

He added that more block deals can get executed once the one-year lock-in ends in other start-ups that got listed last year after Zomato.