Upcoming IPO lock-in expiry until December: Are these stocks poised for outflows?

SEBI introduced varying lock-in periods for different categories of existing shareholders when a company is listed on the stock exchanges through the IPO route. These lock-in provisions are designed to prevent an immediate decline in stock prices following the listing. As an example, 50% of the allocation to anchor investors now has a lock-in period of 30 days, while the remaining portion has a lock-in period of 90 days.

Previously, anchor investors had a lock-in period of only 30 days, which led to a significant drop in share prices once the selling window opened. Regarding promoters’ shareholding, there is a lock-in period for a minimum of 20% of the post-issue capital, and this lock-in period lasts for 18 months.

Numerous recently listed companies on stock exchanges are bracing for a potential period of volatility as the lock-in periods for various initial public offering (IPO) shareholders are nearing expiration. These lock-in periods commenced on August 25 and will continue until the end of December this year. As these lock-in periods conclude, pre-listing stakeholders will gain the freedom to reduce their holdings in these companies, a development that often triggers selling pressure.

A total of 37 companies are poised to open their pre-listing shareholders’ lock-ins over the next few months until December. These IPOs were launched between October 2020 and August 2023. These stocks could face an estimated fund outflow of approximately Rs 1,80,000 crore if shareholders opt to exit following the lock-in period’s conclusion. Out of this estimated outflow, shares worth Rs 22,190 crore are expected to face selling pressure in the next two months, with Rs 8,420 crore in 10 stocks in September and Rs 13,770 crore in 13 stocks in October.

Among the companies under scrutiny, 11 stocks have witnessed remarkable gains, ranging from 100% to 1,000%, from their respective issue prices. For instance, Mazagon Dock Shipbuilders’ shares surged by 1,188% from its issue price when it was offered for subscription in October 2020. Its three-year share lock-in period will conclude on October 9. Angel One is another notable example, with its shares increasing by 476% from the issue price when it was available for subscription on October 5, 2020. Its three-year share lock-in period will end on October 3.

Additionally, a few stocks experienced significant declines in the past: Zomato, which plunged by nearly 11% as its IPO lock-in period for promoters ended, SBI Cards and Payment Services and Mankind Pharma fell 15% and 5%, respectively on the day after the 30-day lock-in period ended for anchor investors.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.