IPO lock-in expiry: Shares worth Rs 1.47 lakh crore to enter market between April and July

A lock-in period or lock-up period refers to that time during which investments cannot be sold

The next four months will see shares worth Rs 1.47 lakh crore ($17.7 billion) entering the domestic market with the lock-in periods of 66 companies, including Tata Technologies, Exicom Telesystems, IREDA, Honasa Consumer (Mamaearth) and JSW Infra opening between April and July 2024.

The 1-month lock-in period of Platinum Industries, Exicom Telesystems, Bharat Highways Invit, R K Swamy, JG Chemicals, Gopal Snacks, Popular Vehicles & Services and Krystal Integrated Services will end between April 1 and April 18.

The 3-month investor lock-in period of 22 companies including Mukka Proteins, Jyoti CNC Auto, Medi Assist Healthcare, Epack Durables, Jana Small Finance Bank and Vibhor Steel Tubes will expire between April 8 and June 17.

The 5 and 6-month lock-in of 38 companies including Honasa Consumer which operates Mamaearth brand, IREDA, Inox India, Innova Captab, Muthoot Microfin, DOMS Industries, Tata Technologies, Gandhar Oil, Ask Automotive, Manoj Vaibhav Gems, JSW Infra and Medi Assist Healthcare will end between April 1 and July 29.

The one-year share lock-in period of Global Surfaces ended on April 1 while that of IKIO Lighting will expire on June 17.

The 1.5-year lock-in period for 15 companies including Bikaji Foods, Landmark Cars, Inox Green and Kfin Technologies will open between April 15 and July 2.

The lock-in period of Global Surfaces, Sai Silks (Kalamandir), JSW Infrastructure, Platinum Industries and Exicom Telesystems opened today. The stocks of all five companies ended the session in green on Monday.

What is a lock-in period?

A lock-in period or lock-up period refers to that time during which investments cannot be sold. SEBI has set different share lock-ins for different sets of investors. Anchor investors typically have a lock-in period where 50 percent of their shares are locked for one month and the remaining 50 percent for three months from the date of allotment. For promoters, the lock-in requirement for allotment of up to 20 percent of the post-issue paid-up capital is 18 months and for allotment exceeding 20 percent is 6 months.

Why do investors track lock-in periods of different stocks?

Investors pay attention to lock-in periods because when a company goes public after the lock-in period expires more shares become available for trading. This increases the free float in the market, meaning there are more shares available to be bought and sold. “With more shares in circulation, there is a possibility of an increase in supply, which can lead to a decrease in the company's stock price. While there may not be direct indicators of this, it is commonly observed that when the supply of shares increases, prices tend to drop. Therefore, investors may choose to sell their holdings before the lock-in period ends, especially if they want to secure profits,” said Kulbhushan Parashar, Founder and Managing Director at Corporate Capital Venture.

What is the impact of the lock-in expiry on the particular stock?

When the lock-in period ends, there's a chance that a certain number of shares may enter the market in the form of a block deal, creating more liquidity. "It is believed that stocks should fall when the lock-in period ends, but that's not always the case. The lock-in period simply indicates that promoters and other investors can now sell their stake, but it depends on market sentiment. If the market is declining, they might hold off on offloading their stake and wait for sentiment to improve. This shows that price action in a particular stock isn't necessarily tied to the lock-in period ending. Instead, they strategically sell their portions," said Abhilash Pagaria, Head of Nuvama Alternative and Quantitative Research.

“Not everyone rushes to sell their shares after the lock-in period expires,” Parashar added.

What does the past trend suggest?

“The trend is quite varied. There have been cases like Nykaa where pre-IPO investors sold their shares heavily after the lock-in period expired, causing the share price to drop dramatically, and hitting a lower circuit of 20 percent. In most case studies or trends, there's often a decrease in the share price after the lock-in period ends,” Parashar said.

Is lock-in expiry a good time to buy the stock?

“If you like the fundamentals of any stock and notice that the stock price is decreasing after the lock-in period expires, it presents a good opportunity. This additional volume is solely due to the lock-in opening up and nothing else, making it an opportune time to enter the stock,” said Pagaria.

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