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Even as private equity investors cash out of several new-age companies that went public last year, domestic institutions are buying into these firms, signalling their long-term belief in the India story.

Private equity firms have offloaded shares worth 14,935 crore through block deals over the past year through November. While a large part of this was absorbed by other foreign institutions, domestic institutions, including mutual funds, have also purchased a substantial chunk, data compiled by Venture Intelligence for Mint showed, as they bet on promising fundamentals, relatively low free float and attractive valuations.

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According to industry experts that Mint spoke to, more than 40% of the shares sold in block deals in 2022 were bought by domestic institutional investors (DIIs), with the remaining scooped by foreign portfolio investors (FPIs).

“The overall environment for these new-age tech stocks remains challenging, in line with the global meltdown in tech valuations. Given that the road to profitability for many of these firms remains uncertain, some of the stocks have come under pressure once the lock-in period expired. Private equity investors holding such tech stocks have a finite investment horizon and have looked to liquidate holdings on expiry of lock-ins," said Anuj Kapoor, managing director and chief executive at the private wealth group and alternatives fund platform of JM Financial Ltd.

According to Kapoor, in such cases, buyers have been a mix of domestic institutional investors and foreign buyers who see value at current prices.

MFs have already raised their stakes substantially in the September quarter in certain firms that saw heavy FPI selling in the past year. These include Sona Comstar, where MF’s stake rose to 21.03% at the end of the September quarter from 14.22% at the end of the preceding three months, and Rolex Rings, where MFs’ stake jumped to 30.65% from 21.8%.

Others saw funds raise stakes in smaller chunks: Policy Bazaar (4.68% from 2.52%), Zomato (4.57% from 2.37%) and Paytm (1.26% from 1.14%) over the comparative period.

Of the 14,935 crore sales by FPIs via block deals, Zomato tops the list at 5,540 crore, followed by Sona Comstar ( 4,043 crore), Paytm ( 1,631 crore), Policy Bazaar ( 1,042 crore) and Rolex Rings ( 600 crore). Others that saw block deals included Nykaa, Dodla Dairy and Barbeque Nation.

Relatively attractive valuations and low free float available (since PEs and VCs tend to hold large stakes) are prompting funds to raise stakes in select firms, said U.R. Bhat, co-founder of investor advisory Alphaniti Fintech.

“MFs have seen a jump in investor interest through the SIP route, and they zero down on such firms through block deals normally where they can’t buy a substantial chunk from the secondary market always because of significant PE/VC holding," said Bhat, who expects MF holdings in such companies to increase.

From a valuation perspective, Zomato at 65.5 and Nykaa at 176 are each down 57% from their 52-week highs.

“Domestic funds have selectively purchased in block deals when PE funds have exited post-listing," said Nilesh Shah, managing director of Kotak AMC.

An executive with a global investment bank that helps PE investors sell via block deals said insurance firms raised holdings in recent IPOs. “They have a longer-term perspective to hold these stocks and ride the current challenging environment on tech valuations. They are betting on the strong inherent business models of some of these firms with proven unit economics, wherein a path to corporate profitability is more visible," the banker said.

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