The Indian stock market may be trying to stabilize after repeated bouts of volatility, but a fresh strategy note from Kotak Institutional Equities has delivered a sharp warning: the selling wave is far from over. According to the brokerage, the market is facing an unusual surge of share supply—so heavy that buyers may eventually get exhausted.
As valuations remain elevated and major investors offload holdings at scale, Kotak believes the correction phase could stretch longer than many expect.
Why Kotak Sounds Cautious Now
Kotak’s report highlights three major fault lines that are putting the market under pressure: still-high valuations, a historic flood of share supply, and aggressive exits by promoters and private equity funds.
Valuations Have Cooled—But Not Enough
Nifty’s price-to-earnings ratio, which had reached an expensive 24.2x in 2024, has corrected to around 17.8x in 2025. While this brings the market closer to a comfortable zone, Kotak notes that valuations remain on the higher side.
That means institutional investors—who drove much of the earlier rally—are now more inclined to book profits than deploy fresh capital.
The Real Stress: A Flood of Shares Hitting the Market
Kotak points out that the past three years have witnessed an unprecedented supply of equity:
• Promoters have sold roughly USD 40 billion worth of shares between CY2023 and CY2025.
• In CY2025 alone, promoter selling touched USD 14.2 billion, one of the highest annual tallies ever recorded.
At the same time, private equity and venture capital investors are rushing to exit their long-held positions through block deals. Some of the largest PE stakes include:
• Lenskart – 54.9%
• Vishal Mega Mart – 54.1%
• Hexaware – 74.6%
These bulk sales add significant supply to the market, often absorbing liquidity that would otherwise support prices.
IPO and QIP Deluge Intensifies the Pressure
The capital market has been buzzing with activity in 2025, with companies raising around USD 25 billion through IPOs and QIPs.
However, a critical nuance stands out: a majority of this fundraising is dominated by Offer for Sale (OFS) components. That means existing investors are exiting rather than companies raising fresh growth capital. This again adds to secondary-market supply and weighs on valuations.
Kotak also notes sizeable selling by the government, which has offloaded nearly USD 3.4 billion in shares through FY2024–FY2026 via disinvestment and block deals in PSUs and financial institutions.
What Should Retail Investors Do Now?
Kotak’s guidance for everyday investors is straightforward: avoid chasing sharp upswings and resist the urge to buy aggressively during rebounds.
Instead, the brokerage recommends:
• Use staggered buying during dips rather than lump-sum entries.
• Stay cautious with stocks heavily sold by PE/VC investors or those recently hit by large OFS flows.
• Continue SIPs, as domestic mutual fund inflows remain strong and will likely act as a stabilizing force for the broader market.
The underlying message is clear: the supply overhang is significant enough to keep volatility high, and patience—not fear or haste—will be the most important discipline in the coming weeks.
Takeaway
A perfect storm of high valuations, promoter selling, PE exits, and a flood of IPO/OFS activity has created a supply-heavy market. Kotak believes this pressure may not ease soon, making selective, phased investing the safest route for retail participants.
