The Indian stock market, experiencing a correction after a period of robust growth, is facing a new challenge: the expiration of lock-up periods on approximately $4 billion worth of shares from recently listed companies.
This influx of potentially available shares coincides with broader market anxieties, adding downward pressure on stock prices and raising questions about the continued strength of India’s IPO market.
Lockup expiries coincide with market correction
Data compiled by Nuvama Alternative & Quantitative Research reveals that lockups in companies such as FirstCry operator BrainBees Solutions Ltd., Ceigall India Ltd., Ola Electric Mobility Ltd., and Unicommerce eSolutions Ltd. expired on Monday.
The timing is particularly sensitive, as the overall Indian stock market has already seen a significant $1 trillion decline in value since mid-December.
Stock prices react to increased supply
Shares of several companies impacted by the lockup expiry experienced declines on Monday.
Quadrant Future Tek Ltd., a train signaling firm, saw the most dramatic drop, plummeting 20%.
Unicommerce eSolutions’ shares also experienced a significant slump, falling 10% – their biggest single-day drop since their market debut in August.
Ola Electric, backed by Softbank Group Corp, fell 3.3%, while food delivery giant Swiggy Ltd.’s shares closed nearly 5% lower.
While the size of this lockup expiry is substantial, analysts note that not all the shares are necessarily headed for immediate sale.
According to Abhilash Pagaria, head of research at Nuvama, who told Bloomberg that founders often retain significant portions of their companies’ stock.
IPO pipeline remains active amidst market concerns
Despite the recent market jitters, India’s IPO market remains surprisingly active.
Securities regulators are currently processing over 60 IPO applications, defying the pessimism enveloping the nation’s shares.
However, concerns about a slowing economy and moderating earnings growth, which have contributed to a 20% decline in the total market capitalization of Indian stocks (down to $4.1 trillion from a December high), could eventually impact the primary market.
“If the weak sentiment in the secondary market continues, it’s likely to create headwinds for the primary market as well,” Sunil Damania, chief investment officer of Marketsmojo Asset Management, told Bloomberg.
Looking ahead: will IPO momentum continue?
Other companies affected by the lockup expiry include Niva Bupa Health Insurance Co. and Acme Solar Holdings Ltd., according to Nuvama Alternative.
Despite the headwinds, IPO-bound firms are largely maintaining their listing plans.
Hexaware Technologies Ltd.’s upcoming share sale, expected to be worth over a billion dollars, is poised to mark the year’s first major offering.
In 2023, Indian IPOs generated a record $21 billion through more than 300 listings.
While Hyundai Motor India Ltd.’s $3.3 billion IPO was the country’s largest ever, a majority of the debuts were smaller firms that raised less than $10 million, painting a picture of a vibrant but potentially vulnerable market.
The coming weeks will be crucial in determining whether India’s IPO momentum can withstand the combined pressures of lockup expiries and broader market uncertainty.
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