Why Are Ola Electric Shares Hitting Upper Circuit

The share price of any company is normally influenced not only by the fundamentals—financial performance of the company—but more importantly by the liquidity of the stock or in common parlance free float of the stock.

Ola Electric's IPO was priced at Rs 76 apiece at a discount to the December fund raise of Rs 118 apiece. Though at first it seemed that the December investors were at a disadvantage, they are now laughing all the way to the bank.

Shares of Ola Electric on Monday closed at Rs 146.38 a piece, a jump of 92.6% from the issue price. The stock, after hitting 20% circuit for two days, hit another 10% on Monday.

At the time of listing, shares of the electric vehicle manufacturer had 16.5% of its equity shares or 72.80 crore shares freely available for trading, according to the disclosure to the stock exchange. Despite this float, lack of float of shares led to the stock hitting the upper circuit in three out of the last six trading sessions.

To be clear, the EV makers’ IPO did not witness significantly high subscription from retail and institutions. Qualified institutional investors subscribed 5.52 times, while the non-institutional investors' portion—subscribing above Rs 5 lakh—was subscribed 2.79 times. The total issue (including the anchor book) was overall subscribed 2.95 times.

But it was a different playbook once it was listed on the exchange. The pre-IPO price discovery was arrived at the issue price, and then demand started for the EV maker's shares.

The total delivery value of Ola Electric shares on both the exchanges—NSE and BSE—was just over Rs 6,800 crore since its Aug. 9 listing. Delivery volumes on both the exchanges stood at 57.84 crore shares—79.4% of the free float has changed hands during the last six trading days.

The rise in Ola share's price is largely a result of low float in the market. The total size of the Ola Electric IPO was Rs 6,140 crore, including the anchor book. Of this, retail individuals and non-institutional investors' portion accounted for Rs 1,535 crore of the issue. This portion was just 25% of the IPO, or 4.6%, of the post-issue equity capital of the company.

Mutual funds again played a good hand at the IPO, cornering 28.35% of the issue and holding 5.19% of the equity of the company at the time of listing. The domestic funds had earlier subscribed 40% of the anchor book.

SBI Magnum Midcap Fund was the largest holder of the shares, owning 1.79% of the company on the listing day, according to disclosure to the stock exchanges.

Institutions have been reluctant to sell shares and persistent demand has led to the share price of Ola Electric trend up.

The rising price has kept investors on the sidelines on the back of expectation that low liquidity will push the prices further higher. But more liquidity may have to wait for another two weeks, as the first lot of anchor book shares will come out of lock-in on Sept. 5, when 18.17 crore of additional shares will be available for trading. The second half of the anchor book will be released on Nov. 4—90 days after the allotment of the shares in the IPO.  

Hopefully, by then some of the institutions would like to book some profits, but there would be others who didn’t participate in the IPO, looking to buy shares at higher prices.