The current downturn in stock markets and ongoing volatility could impact the plans of investors looking to sell shares in recently-listed companies once their lock-in period expires. These shares are primarily held by pre-IPO investors such as promoters, private equity firms, and anchor investors.
Between February 18 and May 31, lock-in periods for 90 companies are set to expire, potentially releasing shares worth around $42 billion for sale. These estimates are based on shareholder analysis for companies listed up to February 17, as per Nuvama Alternative & Quantitative Research.
For example, the six-month lock-in period for Swiggy will end on May 13, making 1,897 million shares available for trading. However, the share price is currently down 7.6% from the IPO offer price of ₹390. Similarly, the one-year lock-in period for 5,291 million shares of Bajaj Housing Finance ends on April 15. While the stock is trading 66% higher than its issue price of ₹70, it is 38% below its 52-week high.
Given the bearish market conditions and the fact that many PE-backed companies are trading below their listing price, investors are unlikely to sell large stakes at lower prices when the lock-in period ends. Nearly half of the companies that went public since the beginning of last year are currently trading in the red.
Selling shares now could mean realizing losses or selling at prices significantly below their peak. Alternatively, investors may have to wait for market conditions to improve before considering an exit strategy.
Open market sales were a popular exit option for PE/VC investors last year when equity prices were high. However, with the current market correction, we could see a significant decline in this exit type until trading multiples improve.
The lock-in periods vary for different investors, with anchor investors required to hold 50% of their shares for 90 days and promoters facing lock-ins based on post-issue paid-up capital.
In conclusion, the recent market correction and volatility may impact the plans of pre-IPO investors looking to sell their shares after the lock-in period ends. The decision to sell in a bearish market may lead to lower prices or losses, prompting investors to hold onto their shares until market conditions improve.
Published on March 9, 2025.
