Markets stare at $19 bln outflow as new listings will test investor resilience

As markets are already combatting a severe sell-off in equities, expiry of lock-in periods of large companies may intensify the pressure

By Nasrin Sultana

Published: Oct 9, 2024 01:21:24 PM IST

Updated: Oct 9, 2024 01:26:24 PM IST

There could be a possible turmoil of $18.8 billion outflow of money between October and December, as 43 companies will see the expiry of lock-in periods Image: Shutterstock

Amidst a market that’s already caught in a downward spiral, which is wrecking the nerves of investors, another round of funds sell-out will put further pressure on equities and add to the tension. As a clutch of new listings hit secondary markets in the last few months, these stocks may face selling pressure after the lock-in periods of various categories of investors during the initial public offering (IPO) phase are expiring.

There could be a possible turmoil of $18.8 billion outflow of money between October and December, as 43 companies will see the expiry of lock-in periods for existing shareholders in various categories in their IPO period. The analysis by Nuvama Alternative & Quantitative Research considers stocks listed until October 4.

However, the amount of outflow is calculated based on the expiry of lock-in period and does not necessarily mean that all shares will be sold off as soon as the mandatory time frame exceeds. “The promoter and groups also hold shares in these companies and typically do not sell off immediately post the lock-in period expiry,” says Abhilash Pagaria, head, Nuvama Alternative & Quantitative Research.

Some of the large issues, which are set to see the existing shareholders lock-in expiry, are Bajaj Housing Finance (Rs 6,560 crore), Ola Electric Mobility (Rs 6,146 crore), Mankind Pharma (Rs 4,326 crore), FirstCry owner Brainbees Solutions (Rs 4,194 crore) and Aadhar Housing Finance (Rs 3,000 crore).

Market regulator Securities and Exchange Board of India (Sebi) has mandated different lock-in periods for separate categories of existing shareholders in a company that is listed on the stock exchanges via an IPO. The lock-in filters are kept so that there is no immediate decline in stocks after going public.

Also read: Will raging bulls of IPO survive markets storm

Raining IPOs

It has been a busy primary markets in FY25, with almost double the number of companies going public than previous year. In the first half of FY25 (April to September), 40 companies raised Rs 51,365 crore through main board IPOs, 95 percent higher than the Rs 26,311 crore in the last year, according to Prime Database. In the first half of FY24, there were only 31 IPOs.

The average deal size of the IPO was Rs 1,284 crore in the first six months of FY25 with the largest issue being Bajaj Housing Finance (Rs 6,560 crore) and Kronox Lab raising just Rs 130 crore, the smallest sum. In terms of sectors, the highest fundraise by an IPO was by housing finance at Rs 9,560 crore, or 19 percent of the total money collected via IPOs. New age technology companies also returned to primary markets with five issues—Awfis, Digit Insurance, Firstcry, Ixigo and Unicommerce—raising a collective of Rs 8,424 crore.

Of the 38 IPOs (for which data is available), 35 received a mega response of more than 10 times while two issues were oversubscribed by more than three times. Response of retail investors to IPOs also increased tremendously. The average number of applications from retail more than doubled to 20.91 lakh in first six months of FY25, in comparison to 9.67 lakh in the same period last year. The total allocation to retail, however, was only Rs 11,976 crore, which was 24 percent of the total IPO mobilisation.

According to Pranav Haldea, managing director, Prime Database Group, the IPO response was further buoyed by a strong listing performance. Average listing gain increased to 34.28 percent, in comparison to 28.65 percent in the first half of FY24.

The analysis also shows that only 11 out of the 40 IPOs that hit the market had a prior private equity/venture capital investor who sold shares in the IPO. Offers for sale by such PE/VC investors at Rs 6,730 crore accounted for 13 percent of the total IPO amount. Offers for sale by private promoters at Rs 12,201 crore accounted for another 24 percent of the IPO amount. The amount of fresh capital raised in IPOs in the first half of FY25 was Rs 25,053 crore, or 49 percent of the total amount.

Anchor investors collectively subscribed to 36 percent of the total public issue amount. FPIs played a slightly more dominant role than mutual funds as anchor investors, with their subscription amounting to 16 percent of the issue amount with mutual funds at 14 percent. Qualified institutional buyers (including anchors Investors), as a whole, subscribed to 59 percent of the total public issue amount. FPIs, on an overall basis, as anchors and QIB, subscribed to 26 percent of the issue amount in comparison to mutual funds at 18 percent.

There are 26 companies proposing to raise Rs 72,000 crore with the market regulator’s approval, while another 55 companies (Rs 89,000 crore) are awaiting for approval.