The surge in Indian equities and rich valuations have prompted promoters, private equity firms and strategic investors to offload shares worth over $10 billion in 2023 so far, using the block deal route with June seeing the highest number of blocks worth about $4.7 billion. In 2022, there were block deals worth $14 billion.

Block deals have always been a mode for stakeholders to exit and for funds and institutional investors to buy, but the pace and number of blocks have been on an unprecedented scale this year. March was another month that saw $1.8 billion worth of block deals being transacted, according to data by Prime Database.

Offer for sale, as a route, has become less favoured due to its lengthy process and specified rules to be followed; mostly government-owned companies are taking that route now. In 2022, a chunk of the $1.4-billion worth of OFS deals was accounted for by the government selling stakes in ONGC, Axis Bank and IRCTC. In 2023 so far, of $880 million worth of OFS, divestment in Coal India fetched the government $507 million.

Blockbuster year

“I think it reflects the underlying demand for stocks, especially from institutional players, mostly the foreign investors,” said Deepak Jasani, Head of Retail Research at HDFC Securities. He added that foreign portfolio investors were bullish on the Indian markets, and they wanted to deploy large amounts of money quickly without much impact cost.

Data from exchanges and Prime Database show that promoters and private equity firms have been using the block deal route to exit and sell substantial chunks. Mutual funds, insurance companies, as well as other private equity firms have used the opportunity to stock up on the shares as most of the deals were done at significant discounts to the prices prevailing on the days.

Economy linkage

V Jayasankar, MD and Member of the Board of Kotak Investment Banking, said block deals were active since last one year even when the markets were challenged, and the quantum has gone up this year and in the June quarter. “This only shows that investors would like to put more money to work in companies that are already listed and that have been tracked for long. Importantly, blocks are easier to do as it just takes a few days to complete. We have seen a pretty good deal flow in blocks and I think the momentum may continue, but every month may not see block deals as high as June.” The Kotak group managed over a third of the block deals and OFS in the June quarter in value terms.

He said over $10-12 billion of FPI money had come in the last three months on back of robust Indian market, strong macros and good corporate earnings, “which have been linked to block deals and OFS touching a large size of $6 billion in the last quarter.”

Investors needed fresh paper to invest in, and while they could do it through IPOs, it had a longer lead time. Jayasankar said for PE investors and promoters who wanted to exit, now was the right time to sell with the indices crossing life highs.

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