The pre-listing lock-in period of nearly $12 billion worth of shares in 46 recently-listed companies is set to end in the next three months. This could trigger selling pressure in some individual stocks, according to market participants.
These lock-ins will expire between today and September 30, and include holdings from both promoters and non-promoters, said Abhilash Pagaria, head of Nuvama Alternative and Quantitative Research, in a note. The lock-in periods differ from one month to beyond 1 year.
Among the big names where the pre-listing lock-in will end before September 30 are JSW Infra, Mukka Proteins, Jyoti CNC Automation, Apeejay Surrendra Park Hotels, among others. The lock-in period for some shares of Awfis Space Solutions will expire on June 27, Bharti Hexacom on July 8, Aadhar Housing Finance on August 12, Gopal Snacks on September 13 and JSW Infra on September 30.
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As per the Securities and Exchange Board of India (Sebi) regulations, anchor investors have to hold at least 50% of the shares allotted to them in the initial public offerings (IPOs) for at least 90 days. Similar restrictions are also placed on promoter shares in the IPO companies.
The market regulator had introduced lock-in periods to safeguard the interest of small investors by ensuring stability in the share prices of the newly-listed companies, at least for some time. The regulations also help restrict promoters and institutional investors from early exit if the stock gets listed at lofty valuations.
The Indian market has seen tremendous growth over the last few years with the IPO market buzzing with activity. Many of these public issues have also given robust returns to investors, although some new-age companies had seen sharp sell-off post listing amid high valuations and profitability woes couple of years ago.
On several occasions earlier, shares of companies with lock-in period expiry have come under intense selling pressure. Most notable among these are Zomato, FSN E-Commerce, PB Fintech and Delhivery.
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“If a particular stock is down from issue price, some early investors may want out. They may not want to continue beyond the lock-in expiry, at least for stocks where they’ve been stuck for a longer period,” said Deepak Jasani, head of retail research at HDFC Securities.
Analysts said even in cases where a stock has risen sharply, investors may look to partially book profits. Market participants highlighted the strong institutional demand in the market in recent block/bulk deals, and said as long as there are buyers, there may not be any significant risk for investors.
“It’s important to note that not all of these shares will come for sale as a sizeable portion of these share are also held by promoter and promoter group,” Nuvama said.
Jasani said there may be selling pressure in some companies, but added that just because the lock-in is expiring on a particular day, all shares will not hit market at once. “There may be downward momentum in the first week or 10 days after lock-in expiry in some cases. If there are willing buyers, there won’t be a problem,” he said.
