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Indian equity markets are witnessing tremors in stock prices of start up unicorns that listed amid great fanfare about a year ago. Reason: it is the end of promoter lock-in for most of these companies.
Beginning with the FSN E-Commerce Ventures, the owner of Nykaa, over a dozen companies’ shares will be released from the one-year promoter lock-in period over the next few weeks. Nykaa’s strategic five-for-one share bonus issue perhaps arrested the anticipated meltdown in its stock price today. Even so, the stock is hugely down from its record listing price, after adjusting for bonus.
One has already experienced huge sell-offs in such situations in start-ups such as Zomato earlier this year. The Street is now buzzing with speculation on the impact of stake sale by promoters and strategic investors at the end of the lock-in period, on stock prices. Investors are nervous. Shares of several start ups such as One 97 Communications (Paytm), PB Fintech (Policy Bazaar), Fino Payments Bank, Delhivery, Sapphire Foods, Go Fashion, Shriram Properties, which listed about a year ago, are all down significantly today(at the time of writing this piece).
Also, the macroeconomic milieu is not encouraging for domestic equity markets. And the unicorns have little to showcase in terms of strong profitability and earnings traction. While there are a few exceptions, most of these firms have already faced a rout in their stock prices as recent quarterly results (post-IPO) did little to justify their sky-high valuations.
The start up IPO saga has riled retail investors in 2022. It has also pushed the markets regulator to tweak rules on fund raising and listing, in the name of protecting the retail investors’ interest.
Indeed, there is no conclusive answer to how the end of a lock-in period could affect stock prices. Some may prosper if fundamentals are good, others may struggle and give investors a run for their money. Volatility in stock prices is, however, certain and it is good for retail investors to stay out till the dust settles.
An aside in today’s edition: how start up funding this time around could be different from earlier cycles
Investing insights from our research team
Kaynes Tech IPO: Should you consider it, despite the expensive valuation?
Divi’s Labs: Near-term triggers are missing
Cummins India: Entering a new cycle with improving prospects
Coal India: Valuation captures most of the positives
Tata Motors Q2 FY23: Positive surprise from JLR
What else are we reading?
Blind spots that threaten financial stability
The complex political economy of friend-shoring and near-shoring
Is MRF losing its pole position in the tyre sector?
Divi’s and Gland Pharma’s weak results show B2B model not without risks
Retail investors are playing the long term game: Vasanth Kamath, CEO, Smallcase
Tech jobs: mass lay-offs herald Great Redistribution of talent (republished from the FT)
Republicans misjudged the power of abortion rights
Why investors shouldn't get carried away by the recent market recovery
A contracting RBI balance sheet detrimental to systemic stability
G20: India’s presidency could set stage to bring in balanced market regulatory reforms
Don’t count on the usual post-midterm stock rally
Technical Picks: Divi’s Lab, Havells, SAIL, SRF, USD-INR and Turmeric (These are published every trading day before markets open and can be read on the app).
Vatsala KamatMoneycontrol Pro
