Newly Listed Stocks Set For Summer Volatility As Lock-In Periods Expire

The superstar stocks, which listed successfully in and around November–December last year, will face an acid test soon. The five and six-month lock-in periods of freshly listed stocks like Tata Technologies, Ireda, Cello World, Doms Industries, Gandhar Oil Refinery, Flair Writing Industries and more will open in May and June.

In the not-so-recent past, stocks like Zomato, Nykaa, Paytm and PB Fintech saw their stock prices fall dramatically after lock-in expiries — with a few even hitting lower circuits. This time around, however, there might not be a long-drawn volatility hit to the stocks listed in FY24 in particular, according to experts.

The key reason is that most investors aren't unhappy with the listing as well as post-listing gains of these stocks. "In FY24, 75 companies got listed, out of which only 13 companies got listed below the issue price and only 22 were trading below the issue price on the last trading day of FY24. Newly listed stocks have performed well this year," said Samir Bahl, chief executive officer of investment banking at Anand Rathi Advisors Ltd.

Historically, however, when millions of stocks open up for trade, it will add volatility into the system. As per Nuvama Institutional Equities, between April and July, stocks to the tune of $17.7 billion belonging to 66 companies will see both three-month and five-to-six-month lock-in expiries. This is an offshoot of a very busy IPO market in FY24.

"If we analyse the past trends at the time of opening of lock-in period, the stocks have usually ended with selling pressure due to increases in the free float in the market and more number of shares becoming available for buying and selling. Selling becoming more important, especially if the stock has delivered healthy returns post IPO. Investors would usually choose to book and safeguard their returns/profits, creating a lot of volatility in the counter,” said Prashanth Tapse, senior vice president, research analyst, at Mehta Equities.

Anchors Away

Anchor investors who can exit in three months will see a large chunk of expiries in the coming months too. As many as 16 IPOs were listed between December 2023 and January 2024. But its impact would only be short-term this time, experts said.

"By May, June, and July 2024, the anchor lock-in periods for these companies will open up, giving anchor investors with a short-term view an opportunity to exit and new institutional investors to buy. This might cause some short-term volatility, but it ultimately bodes well for companies with strong fundamentals and growth prospects. Overall, opening of lock-in in these companies will also lead to liquidity in the market,” added Bahl.

Tapse concurred. "Yes, anchor investors may go selective in offloading shares, considering fundamentals and industry outlook."

The rest of investor classes, including non-promoters or promoters, might stay put and remain selective while offloading their stakes. Especially big stocks like Tata Technologies Ltd. and IREDA Ltd. might see little volatility with a neutral selling pressure, said experts. In fact, more institutional investors are expected to enter some high-quality stocks as other investor classes exit.

"With Tata Tech and IREDA showing a three-year sales CAGR of 29% and 23%, respectively, these companies offer significant potential for high returns and the investors might want to stay invested for a longer period. But investors might sell their stake in companies whose fundamentals are not very strong, or the growth prospects are not very encouraging," said Bahl.

While new-age companies suffered through the expiries, there have been cases like Mankind Pharma Ltd., too, where lock-ins have little or no impact. "In the meanwhile, post lock-in, more investors rush in to grab the liquidity and accumulate underd stocks like Cello World Ltd.," says Tapse.

Block Deals To Rise In Markets?

A lot of lock-in expiries might also result in increased block and bulk deal activity in the market. In May, Ventureast Proactive Fund offloaded a stake worth Rs 67.3 crore in freshly listed fintech Zaggle. However, it was acquired by institutional investors like Tata Emerging Asia Liquid Fund, ICICI Prudential Mutual Fund, Astrone Capital VCC Arven and ACM Global Fund VCC.

"This shows that the markets are maturing and the anchors/investors depending on their return appetite can think of exiting since the companies with strong fundamentals will definitely have buyers participating in blocks who would also stay invested in a company for a longer period,” said Bahl.

Promoters have to comply with the minimum public shareholding norms, which require those holding over 75% to dilute their holding within a period of three years post listing. They need to ensure that a minimum 25% shareholding of the company is held with public shareholders. They could start their offloading process as well, and they, too, might choose the block deal route to avoid flooding of shares in the secondary market.

Katya Naidu is a senior business journalist who writes about equity markets, startups, energy, infrastructure, real estate and healthcare.

Disclaimer: The views expressed here are those of the author and do not necessarily represent the views of NDTV Profit or its editorial team.

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