New IPOs lock-in to expire till December: Will stocks face outflows?

Out of the total estimated outflow, Rs 267,350 crore worth shares are likely to face selling pressure in next two months. Are Indian primary markets slowing down still?

By Nasrin Sultana

Published: Aug 24, 2023 05:11:49 PM IST

Updated: Sep 4, 2023 12:54:10 PM IST

A total of 37 companies are slated to open their pre-listing shareholders lock-ins in the next few months until December. Image: Shutterstock

A slew of newly listed companies in the stock exchanges may soon sink into a phase of turbulence as lock-in period of various shareholders of their initial public offerings (IPOs) is set to expire starting 25 August till December-end this year. As lock-in period opens up, existing stakeholders of the pre-listing period will be free to pare their stake in these companies which often leads to selling pressure.

A total of 37 companies are slated to open their pre-listing shareholders lock-ins in the next few months until December. IPOs of these companies had opened for exchange listing in the period October 2020 to August 2023. These stocks are likely to face an estimated fund outflow of worth Rs 180,000 crore if shareholders decide to exit after the lock-in period expiry, according to an analysis by Nuvama Alternative & Quantitative Research. The analysis considers the closing price of all the stocks as on August 21.

Out of the total estimated outflow, Rs 22190 crore worth shares are likely to face selling pressure in next two months. This include Rs 8420 crore worth shares in 10 stocks in September and Rs 13770 crore in 13 stocks in October as per the analysis.

Of the companies under review, 11 stocks have risen over 100-1000 percent from their respective issue price. For instance, shares of Mazagon Dock Shipbuilders surged 1188 percent over its issue price opened for subscription in October 2020. Its three-year share lock-in period will open on October 9.

Next is Angel One, which jumped 476 percent over issue price opened for subscription on October 5, 2020 while its three-year share lock-in period will open on October 3. Stocks which saw bumper gains over issue price are Happiest Minds (442 percent), Route Mobile (339 percent), Mrs Bectors Food (254 percent), Kaynes Technology (200 percent), Likhitha Infrastructure (136 percent), Syrma SGS Tech (113 percent), Cyient (109 percent, Computer Age Management Services (103 percent) and eMudhra (103 percent). Most of these IPOs were open for subscription in 2020 when stock markets had seen a phenomenal growth following slump after covid-induced nationwide lockdown.

The analysis shows there are only six companies, shares of which have declined from their issue price indicating why the primary markets had heated up in two years starting the second half of 2020.

“We are considering only the lock-in period expiry of all these companies. Necessarily, it doesn’t mean all pre-listing shareholders will exit from those companies in this period itself. It definitely opens up their option to sell stake, however. In the past we have seen stocks under selling pressure when lock-in period expires,” says Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.

Also read: Missing IPOs in a stock rally: When will markets get their mojo back?

Primary markets turn cold

As stock market investors were jarred by uncertainties like Russia-Ukraine war, global recession and overall slowdown, companies delayed their plans to go public. For instance, in January to June, there were around nine IPOs, which collectively raised Rs 8,053.64 crore, shows a Forbes India analysis of data provided by Prime Database. In contrast, there were 16 IPOs in first six months of last year, which raised Rs 40,310.61 crore.

Infact even investors response to new listings had fallen tepid in the first half of 2023.

However, cash registers were ringing in fund raising via IPO in the SME segment. Since the beginning of January, there were about 56 listings in the SME IPO segment, which have collectively raised Rs 1,219.99 crore, according to Prime Database.

"India's current IPO market trend showcases its immense potential and witnessed a remarkable surge in recent years. India must continue to focus on enhancing regulatory frameworks, improving corporate governance practices, and fostering investor education. In the forthcoming months, there is anticipated to be significant momentum in the Indian IPO market, encompassing both the main and SME market segments,” Adarsh Ranka, Partner, Financial Accounting Advisory Services Leader, network firm of EY Global says.

According to analysis by EY, Indian stock exchanges including SMEs top globally in terms of the number of IPOs and ranks eighth in terms of issue proceeds during in 2023, with no cross-border deals recorded. The main markets, saw six IPOs in April-June period of 2023, including a fund raise by an infrastructure investment trust, compared to 14 IPOs in same period last year and four issues in first three months of this year. This shows a decrease of 57 percent compared to same period last year but increase of 50 percent compared to preceding three months. Analysts say that the amendments market regulator Securities and Exchange Board of India (Sebi) will enhance market transparency and governance.

The market regulator has made various regulatory changes in primary markets. Some of the recent amendments include changes in pricing of the issue, disclosure of key performance indicators (KPIs), introduction of pre-filing of draft offer documents (confidential filing) and changes in monitoring agency functions. Sebi has also reduced the timeline for listing of IPOs from existing T+6 days to T+3 days. Under the new rules, which come into effect from December 2023, IPOs will have to mandatorily list after 3 days of the issue closing date.

Also read: IPO analysis: After unlocking, will it be time to unload?

Some of the big upcoming IPOs are Navi Technologies, EbixCash and Tata Play.

What is lock-in period in IPOs?

Sebi has mandated different lock-in periods for separate categories of existing shareholders in a company that is listed on the stock exchanges via the IPO route. The lock-in filters are meant to arrest immediate decline in stocks after listing. For instance, there is a lock-in of 30 days for 50 percent of the portion allocated to anchor investors, and a lock-in of 90 days for the remaining portion. Earlier, the lock-in period for anchor investors was 30 days, which caused a drastic decline in share prices after the window of selling opened.

For promoters’ shareholding, the lock-in to the extent of minimum promoters’ contribution, which is 20 percent of post-issue capital, is for a period of 18 months.