Promoters Trim Stake In Nifty Stocks But Raise Holdings In Larger Universe

India's blue-chip companies saw their promoters' stake decline in the June quarter but have upped their share in the overall listed universe despite valuation concerns.

Unlike the broader universe that saw an increase in stake, promoters of the NSE Nifty 50 companies trimmed their share by about 50 basis points to 42.6% in the June quarter, compared to the previous three months. This was primarily driven by a fall in the private promoter ownership which plunged to a 17-quarter low of 29.3%, according to the data from the NSE.

The foreign promoter ownership dropped for the fourth consecutive quarter by 13 basis points in the April–June period to a nine-quarter low of 6.2%, led by a drop in consumer discretionary. Aided by the continued outperformance of the public-sector-undertaking stocks compared to the broader index, the government-promoter ownership rose to an 18-quarter high of 7.1%, the NSE said.

The promoter share in the NSE-listed companies rose to a seven-quarter high, primarily driven by an increase in government and foreign promoter share. The private Indian promoter ownership in the overall listed universe declined for the second quarter in a row to 32.4%.

There is a possibility for strengthening of the company's corporate governance when promoters offload stake as institutional investors pick up pieces, according to Kranthi Bathini, director of equity strategy at WealthMills Securities Pvt.

When promoters reduce stake, normally in the Indian context, it is perceived as a negative thing, but who is buying also is very important, Bathini remarked. "Selling to institutional investors will increase governance and transparency."

Promoters have offloaded shares worth Rs 91,879 crore in the first half of the year, while they took home Rs 1.26 lakh crore in 2023, Prime Database data showed.

India's benchmark indices—the Nifty and the S&P BSE Sensex—have risen 13%.7 and 11.8% respectively so far this year, making them the sixth and seventh best-performing Asian indices. During the same period, the NSE Smallcap 250 surged 27.5%, while the Midcap rallied about 26%, marking significant gains over the benchmark gauges.

The mid-cap benchmark is valued over Nifty 50 and the small-cap stocks, which continue to gain more despite any froth concerns. The price-to-equity ratio of the Nifty is valued at 24, while that of the small-cap and the mid-cap index is at 33.07 and 45.3, respectively.

Overall, it can be perceived as a positive in the long-term context as there will be a greater say for other professional investors in the company. "We need to look at a case-to-case basis as to what kind of investors are onboarding," Bathini said, adding that promoters might also use the bullish market to pocket more returns.

While foreign ownership has been mixed for the Nifty and the broader market, inflows were skewed in favour of the mid and small-caps, according to ICICI Securities.

Overseas investors are not negative overall from the domestic perspective, Vinod Karki, head of equity strategy at ICICI Securities told NDTV Profit. "They are re-calibrating their portfolio towards riskier assets since they are outperforming currently."

From a macro perspective, India is enjoying the best growth-inflation dynamics globally while the corporate profit cycle continues to expand, thereby making stocks expensive, the note said. "Expensive valuations and rise in global market risk will likely keep the FPI flows volatile in the short term."

Foreign institutions have been net buyers of Indian equities worth Rs 17,840 crore so far in 2024, according to data from the National Securities Depository Ltd., updated till the previous trading day. After two months of buying, overseas funds have turned net sellers in equities worth Rs 17,726 crore in August. Meanwhile, they have racked up government bonds worth nearly Rs 1.04 lakh crore during the year.