Mumbai: The next four months could see a massive supply of shares, potentially reaching up to $12 billion from about 40 companies, excluding state-owned firms that went public in the last two years. This surge arises as various lock-in periods are set to expire for both promoters and investors who participated in pre-IPO placements.
Market observers will be monitoring the actions of pre-IPO investors and promoters in firms such as Mankind Pharma, Kaynes Technologies, Gland Pharma, Utkarsh Small Finance Bank and Senco Gold, among others, to ascertain whether they opt to divest or maintain their current holdings.
Analysts have pointed out that the conclusion of the lock-in period does not necessarily imply an immediate rush by pre-IPO investors to offload their stocks. They anticipate only moderate selling activity.
"The lock-up period set to end doesn't necessarily mean that most of these shares will be sold," said Abhilash Pagaria, head Nuvama Alternative & Quantitative Research. "Where the fundamentals are not compelling, shareholders might choose to book profits, leading to stocks lingering at current levels."
Notably, public sector firms such as LIC, Indian Railway Finance, and Mazagaon Dock have the largest value of locked-up shares, totalling up to $13 billion, with their lock-ins expiring in the next four months.
Pre-IPO investors must compulsorily hold the shares for six months from the IPO, while promoters must hold a minimum of 20% for a year. Pre-IPO investors must compulsorily hold the shares for six months from the IPO, while promoters must hold a minimum of 20% for a year. Anchor investors will have to hold the shares for a month.
IPO prospectus had mentioned the risk that pre-offer shareholders might sell their shareholding, depending on market conditions and their investment horizon, following the lock-in period. They had said that even the perception by investors of such sales could also affect share prices.
The prospects for market returns in FY24 appear to be constrained, primarily due to the impact of already restrictive US yields affecting FPI flows. This is particularly significant given the elevated levels of equity supply in the market, said analysts.
"FY24 is headed towards a $35 billion-plus equity supply - the highest ever, even without much fundraising by banks. The private equity and promoter holding in India is large, and in buoyant markets, such sources of supply can't be ruled out," said Mahesh Nandurkar, head of research, Jefferies, in a recent note. "So unless FPI flows improve, we can see equity supply capping the near-term market upside."
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