The current financial year is setting itself up to create a new record in promoter selling. Promoters have comfortably been selling a significant part of their holdings to domestic institutions and mutual funds. Despite the rising trend in valuations, this season of easy exits seems to be extending.
In fact, it increasingly looks like rising valuations are pushing large institutional equity investors to prefer such block deals with promoters over the market purchase of shares. The markets also seem to be in the mood to cheer such deals when they conclude. The market’s logic is that the supply overhang will cease once the promoter block is absorbed. This further fuels a speculative rally after the promoter deals conclude. Companies raising capital to fund growth plans are also able to seamlessly mobilise the needed monies through equity placements. Liquidity is meeting quick absorption and the institutional appetite for equity remains strong.
The IPO pipeline is also at its strongest. We are seeing unprecedented oversubscription in new issues. This unrelenting appetite for equity is rather unusual for our market. Previously, one very large issue would suck away the liquidity. So, new issues would create a sudden glut making the IPO trend lose steam. But, the prevailing boom in new issues shows no sign of slowing down.
Will the government use the market’s appetite for share sales to achieve a higher disinvestment target? That remains to be seen. For now, the party seems to be in high spirits and everybody is partying very hard.