PE firms cash out amid market surge

Global private equity (PE) firms are successfully offloading large equity stakes in domestic companies in the open market, taking advantage of buoyant conditions.

Strong domestic liquidity support and an upward trending market have underpinned over a dozen PE exits worth $2.5 billion, data compiled by Business Standard shows.

The figures exclude PE exits during maiden share sales and shares sold by strategic investors, such as SoftBank and Ant Group in new-age companies.

Recently, Warburg Pincus’ affiliate company Great Terrain Investment offloaded its entire 19.87 per cent stake in Computer Age Management Services (CAMS), a mutual fund transfer agency, for Rs 2,700 crore.

The US-based PE major, classified as a promoter of CAMS, made over a 4x gain on its investment.

Other prime examples of PE exits in recent months are a 26.6 per cent stake sale in Coforge by Baring Private Equity Asia, and Everstone Capital’s 25.4 per cent stake sale in Restaurant Brand Asia (formerly BurgerKing India).

What stands out this year is that PE firms have been able to offload large stakes in one shot, which earlier used to be done in multiple tranches and months of planning.

More importantly, PE exits have sailed through without distortion of stock prices in the secondary market, with demand often exceeding the supply.

Often, stock prices of the selling company have rallied following the “clean out trades” as the removal of the share sale overhang boosts sentiment, bankers said.

According to industry players, smooth PE exits seen this year are a strong endorsement of the liquidity and the depth of India’s $4 trillion equity markets.

"The markets are getting deeper, and there is a willingness to absorb PE supply.

"The public markets understand that private equity investors who have been holding stakes for five or six years need to have an exit.

"This gives PE players confidence to deploy more money in domestic stocks as there are more exit options available,” said Ajay Saraf, executive director, ICICI Securities.

These PE exits come at a time when the domestic markets are in a bullish phase.

The Nifty Smallcap 100 has rallied 50 per cent, so far, this calendar year, while the Nifty Midcap 100  has gained over 40 per cent.

Smallcap and midcap firms, which have seen the maximum deals, have outperformed the Nifty50, which is up 15 per cent this year.

“The buoyant conditions have led to much better exits. And as a consequence of more exits, we also have a cascading effect of more investments coming.

"The outlook for the Indian market is relatively very positive,” said Darius Pandole, managing director and chief executive officer, JM Financial Private Equity.