Promoter Sales, PE Exits, and QIP Fund-Raises Far Exceed Mutual Fund Net Flows

According to Ashish Gupta, CIO of Axis MF, the equity supply surge has significantly outpaced mutual fund inflows. In his recent Acumen note, Gupta detailed that around ₹4.84 lakh crore has entered the equity market since April 2022.

In contrast, equity mutual funds have received net inflows of just ₹2.21 lakh crore, creating a notable excess in supply. Gupta foresees this trend persisting into the future.

A breakdown of the ₹4.84 lakh crore in equity supply reveals ₹1.86 lakh crore from promoter stake sales, ₹1.15 lakh crore from private equity divestments, ₹80,000 crore from Initial Public Offerings (IPOs), and ₹1.03 lakh crore from Qualified Institutional Placements (QIPs).

Overall, this supply influx is 185% of the net inflow into equity mutual funds over the same period (₹2.61 lakh crore).

Gupta explains, "Supply is often a less frequent market factor. The jump in valuations that the market and companies are now commanding is enticing an increasing number of private companies to list, strategic investors to take profits, and even promoters – both local and multinational – to divest."

Gupta attributes this trend to strong corporate actions, including strategic disinvestments and capital-raising exercises under favorable market conditions. Looking forward, he expects the equity supply pace to remain robust. He notes that India's equity markets could see an IPO pipeline growth of ₹93,000 crore in the coming months.

Private equity divestments are projected to accelerate, with funds currently holding ₹2.77 lakh crore in listed company stakes, of which over ₹2.17 lakh crore are over three years old and poised for market entry.

"Additionally, locked-in shares from recent IPOs, which have seen an average 79% increase from their issue price, will enter the market. Furthermore, with investments totaling ₹4.67 lakh crore in privately held firms, of which ₹3.70 lakh crore are over three years old, exits via public markets and IPOs could potentially add another ₹2.24 lakh crore in supply," Gupta states.