Pre-IPO investors and promoters may be able to sell between €20,000 and €25,000 million worth of shares in November and December, with the lockup period for 12 to 14 companies coming to an end. However, since the current market price of many stocks is well below the IPO price, some promoters and private equity (PE) funds may not sell their shares just yet. Pre-IPO investors are typically allotted shares at a discount of 25-30% to the IPO price.
Gopal Agarwal, head of investment banking at Edelweiss Financial Services, estimates the available amount at around €8,000 to €12,000 million worth of stocks that could hit the market over the next two months, with many investors looking to wait and watch.
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“If 4-5 investors in a company want to sell at the same time and the demand from other institutional investors is not sufficient, that would be a challenge. Companies that were fairly priced during the IPO phase and are now trading above the issue price could see investor exits,” Agrawal said.
Pranav Haldea, Managing Director of Prime Database, believes it is highly unlikely that promoters would sell shares as this would be viewed negatively by the markets. “Most of these promoters are honest and here for the long haul. In some cases, however, it is possible that PEs and VCs have certain exit pressures,” said Haldea.
PL Capital Markets Executive Director Dara Kalyaniwala said some investors may take advantage of the lower prices for tax planning and sell the shares. Some in-the-money pre-IPO investors and founders might try to monetize their shares. “Some investors may want to book profits to offset losses in other companies,” he explained.
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Market watchers are warning that if prices continue to fall and valuations become attractive, demand for shares of new-age tech stocks could increase. “Even the promoters can become buyers when the prices of their companies fall sharply,” Kalyaniwala said.
For issues beginning in April this year, the pre-IPO lock-up period for all categories of investors has been reduced to six months from the date of their purchase. Previously, the lock-up period for pre-IPO investors was one year. For the promoters, up to 20% of the capital paid up after the issuance must be committed for 18 months; it used to be three years. The blocking period for an allocation of more than 20% of the capital paid up after the issuance has been reduced to 6 months. The lock-in rule for anchor investors stipulates that 50% of the shares allocated to them are blocked for 30 days and the remaining 50% for 90 days.
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