End of Lock-in: Investors may sit tight, but supply can limit upside

Mumbai: The lock-in period for shares of 20 companies that mostly made their stock market debuts in the past 3-6 months is set to end in May. These shares, part of the placements to promoters and investors done before the initial public offerings (IPOs), are worth about $13.5 billion, according to Nuvama Alternative.

The lifting of the lock-in does not mean all these investors will rush to offload their holdings. But the risk of supply of shares could put a lid on their gains in the near term.

Of the total $13.5 billion set to be unlocked this month, Nuvama estimates shares of Swiggy make up for more than half, or over $7 billion, in value. Swiggy shares worth about $7 billion are set to be freed up on May 13 that constitutes nearly 85% of the company's outstanding shares, said Nuvama.

Sagility India, Niva Bupa Health Insurance, Aadhar Housing Finance and Tata Technologies are among the other large companies whose lock-in period for pre-IPO shareholders is coming to an end.

"Investors in IPOs, whose shares will be unlocked in the coming weeks, will evaluate alternative investment opportunities and their cost of capital before deciding to sell," said Siddarth Bhamre, head of institutional Research at Asit C Mehta. "Many of these investors are currently sitting on losses and so, there is no immediate pressure to sell."

Between April 30 and July 28, a total of 58 companies are slated to have their pre-listing shareholder lock-ins worth $26 billion lifted, said Abhilash Pagaria, Head - Nuvama Alternative & Quantitative Research.

"It's important to note that not all of these shares will come for sale as a sizeable portion of these shares are also held by the promoter and the group," he said.

According to regulations, anchor investors in an IPO face a lock-in period of 90 days for 50% of their allotted shares from the date of allotment and 30 days for the remaining 50%. Other investors have a lock-in period of six months, while for promoters, the lock-in requirement is 18 months for allotments up to 20% of the post-issue paid-up capital. For allotments exceeding 20%, the lock-in period is six months.

Pagaria said Swiggy has underperformed since listing, and had many high networth individuals (HNIs) as its pre-IPO investors. The stock is down nearly 22% from its debut on November 13.

The demand for recently-listed stocks is relatively muted, said Apurva Sheth, head of research at Samco Securities.

"In general, there is less demand for these stocks, and they may not move up for the next few months until this supply is absorbed by the markets," said Sheth.

Bhamre said any rise in share prices could prompt some selling, potentially capping further upside in the near term, but significant selling pressure could be limited.