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March 27, 2024

Capitalizing on India’s Booming Equity Market: Foreign Companies Sell Holdings Amid Rising Valuations

In the midst of India’s flourishing equity market, foreign companies are strategically reducing their stakes in local businesses, seizing the opportunity presented by soaring valuations. Data compiled by Bloomberg reveals that at least seven firms, including heavyweights like Whirlpool Corp. from the US and Singapore Telecommunications Ltd., have initiated stake reduction processes in their Indian units since June. Additionally, British American Tobacco Plc. announced its intention to sell a portion of its stake in partner company ITC Ltd., underlining the trend of foreign divestment in the Indian market.

These moves by foreign entities are a response to India’s equity valuations, which have soared to become among the highest globally, fueled by eight consecutive years of annual gains. Analysts perceive these divestment transactions as contributing to the expansion of public shareholding, thereby creating opportunities for large-scale investors to bolster their positions in the expansive $4.5 trillion market.

Last month, Whirlpool notably slashed its stake in its Indian unit from 75 percent to 51 percent, with plans to utilize the proceeds of approximately $468 million to alleviate debt burdens. Similarly, Singtel aims to deploy the funds garnered from its stake reduction towards strategic investments in areas such as data centers, as per exchange filings. On the other hand, British American Tobacco has been in discussions with financial giants like Bank of America Corp. and Citigroup Inc., contemplating a potential divestment of ITC shares valued at around $2 billion to $3 billion through block trades.

This trend follows the significant exit in 2022 by cement manufacturer Holcim AG, which divested its India business to the Adani Group in a landmark deal worth about $11 billion. Despite the backdrop of these divestments, India’s primary stock indices have continued to scale new heights, propelled by consistent purchases from domestic investors, which have effectively offset net sales by foreign entities.

While global funds have withdrawn a net $459 million from Indian equities since the beginning of the year, counterparts in Asian markets such as South Korea and Taiwan have witnessed inflows exceeding $8.4 billion each. The influx of cash into mutual funds has provided a cushion to India’s equities against these outflows, with equity assets managed by local institutions reaching a historic high of $277 billion in February. Of particular note is the surge in flows into recurring stock investment plans, which hit a monthly peak of $2.4 billion.

The resilience demonstrated by India’s market amidst stake reductions by controlling shareholders is perceived as positive news for funds seeking to raise and deploy capital within the country. Sachin Mehta, Director of Investment Banking at Anand Rathi Advisors, views this trend as an indicator of India’s attractiveness to investors, underpinned by robust market fundamentals and sustained domestic participation.

In summary, the current wave of stake reductions by foreign companies underscores India’s appeal as an investment destination, driven by its vibrant equity market and resilient investment landscape.

Jhumpa Lahiri

Jhumpa Lahiri

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