Stock market rally under threat! Rs 1 lakh crore shares dumped by promoters, private equity firms & strategic investors; what’s happening

Promoters, private equity firms, and other large strategic investors disposed of shares worth over Rs 1 lakh crore within two months, exerting supply-side pressure on India’s stock market indices Sensex and Nifty, which pursued new record highs.Promoters offloaded approximately Rs 61,000 crore in shares, while PE/VC firms exited nearly Rs 28,000 crore. Additionally, Reliance Industries sold shares worth Rs 9,580 crore in Asian Paints, alongside various block deals by other strategic investors, bringing the total to over Rs 1 lakh crore, according to data from PRIME Database and the NSE data quoted in an ET report.The share sale trend began in May with several significant transactions.

On May 16, Singapore Telecommunications sold Bharti Airtel shares valued at Rs 12,880 crore. Subsequently, on May 27, Rakesh Gangwal, co-founder of IndiGo, sold shares exceeding Rs 11,560 crore as part of a stake reduction in InterGlobe Aviation. The following day, British American Tobacco (BAT) offloaded a 2.5% stake in ITC through its subsidiary for approximately Rs 12,900 crore, marking one of the largest single-day exits recorded.

In June, Vishal Mega Mart's promoter sold a 19.6% stake to mutual funds in a bulk deal worth Rs 10,220 crore. Earlier in the month, Bajaj Finserv's promoter offloaded around Rs 5,500 crore worth of shares. These figures are expected to increase with additional block deals in PB Fintech, Mobikwik, Coforge, and Delhivery executed on Thursday.Market dynamics are seeing a dual effect due to supply-side pressures. "Selling by promoters/PE is being witnessed in few stocks and in those companies, in the short term, upside can be capped as most of the demand from institutions have been fulfilled and support in the secondary market is likely to reduce," warned SBI Securities' Sunny Agrawal according to the ET report.The surge in block/bulk deals stems from increased market liquidity, with domestic investors and mutual funds having substantial capital, alongside renewed FII participation, according to PRIME Database MD Pranav Haldea in his discussion with ETMarkets, highlighting the key factors behind the current selling trend.Addressing market dynamics, he offered a balanced perspective on current conditions. "Some promoters and investors have sold because valuations were attractive for them while others have their own strategic reasons.

It's not necessarily a sign of a market peak, which no one can predict."Regarding PE/VC exits, Haldea views this as positive market development. The trend of private equity and venture capital firms divesting through IPOs and block deals indicates a more sophisticated capital market structure and increased depth. This pattern aligns with established western markets, enabling these firms to generate returns for investors and secure fresh capital for new investments.Investment experts note that understanding the scale and circumstances of divestment is more crucial than focusing on raw numbers. "Promoter selling isn't inherently bearish; its signal depends on why the shares are being offloaded and what ownership remains afterward," said Arvind Kothari, smallcase manager and Founder of Niveshaay.According to Kothari, there are several legitimate reasons for promoters to reduce holdings: "In many cases, promoters trim stakes to meet minimum-public-shareholding rules, unlock liquidity for estate or philanthropic planning, onboard marquee strategic or long-only investors, optimize taxes near fiscal year-end, or fund expansion in privately held group businesses — none of which imply deteriorating prospects for the listed entity.

"Kothari's essential assessment criteria states: "If the promoter still retains a commanding stake, the sale occurs at only a modest discount, and company fundamentals remain intact, the transaction is simply a liquidity event that can broaden free-float and deepen institutional ownership."Warning signs become apparent "when divestments coincide with slipping earnings, heavy pledge unwinds, or a steady slide toward loss of control," he advised.The substantial increase in supply has been effectively managed by institutional buyers who have absorbed the market pressure. "Some supply pressure is inevitable when markets rally — and to an extent, it's healthy. It improves free float and brings price discovery in names that were tightly held," said Mihir Vora, CIO at TRUST Mutual Fund."In many cases, we've seen these sales met with strong institutional demand, especially from domestic mutual funds and insurers," Vora added, emphasising the significant role of domestic investors who have become crucial market participants.The investment strategy at his fund prioritises understanding motivations: "We look at the intent behind the sale. If promoters are monetizing to invest back into the business, or if PE/VC funds are exiting after long holding periods, it's not a concern. What we avoid are situations where exits are paired with governance red flags or signs of operational stress."The current phase of insider selling in Indian markets presents a significant challenge. The sustainability of this trend depends on whether domestic institutional investors can maintain their absorption capacity whilst foreign investors sustain their renewed interest in Indian equities. This period could indicate either market maturation or signal the zenith of the present upward trend.