IPOs: Extending lock-in for anchors doesn’t ensure stability

Shares of One97 Communications, owner of Paytm, dipped sharply a few days ago as the mandatory lock-in period for anchor investors ended. Paytm, India's largest ever IPO of ₹18,300 crore, saw its QIB portion getting bids for 2.8 times. Apart from Paytm, the lock-in period for PB Fintech (Policybazaar), Fino Payments Bank, Nykaa, SJS Enterprises and Sigachi Industries too ended recently.

To arrest volatility in stock prices when the lock-in for anchor investors ends, SEBI recently came out with a consultation paper.

“The concept of anchor investors was introduced to inspire confidence in the issue, especially when such investors commit moneys upfront and thus provide an indication of price as well as improve the price discovery during IPO. Other investors may take a cue based on the investment decisions of anchor investors," SEBI consultation paper said.

At present, the shares allotted to anchor Investors are locked in for 30 days from the date of allotment.

The primary market advisory committee of SEBI was of the view that instead of increasing the lock-in period for all anchor Investors from 30 days, not less than 50 per cent of the anchor book should be given to those anchor investors who may agreeto a 90-day or longer lock-in.

Welcome suggestion

SEBI’s suggestion giving a voluntary option to investors instead of mandating it is a welcome one. This will give a little freedom and bargaining power to companies and merchant bankers while negotiating with anchor investors at the time of launching IPOs.

However, this move alone will not give any stability to stock prices post listing. Of the 60 companies that listed in 2021, majority have posted handsome gains, benefiting from bullish secondary market conditions.

Some of the stocks that saw a strong listing such as Latent VIew Analytics, Sigachi Industries, FSN E-Commerce Ventures (Nykaa), Paras Defence and Space Technologies and Devyani International have either maintained their listing gains or surged even further despite anchor lock-ins expiring. Investors who believe in the company's future prospects and valuation will not sell it in a hurry just because the lock-in period expires.

However, some stocks such as Paytm, SJS Enterprises, Fino Payments Banks, Aditya Birla Sun Life AMC, Nuvoco Vistas, Car Trade, Kalyan Jewellers and Suryoday SFB have witnessed secular fall after lacklustre listing, even before anchor investors’ lock-in period ended.

This indicates that secondary market movement is a function of various factors such as market sentiment, industry-specific development, government policies etc. At best, anchor investors selling will be a part of the whole game.

Key factors for a stock's return and stability are valuation and the company’s fundamentals. Besides, if companies ensure high promoter's integrity and strong corporate governance, their stock will perform well irrespective of individual institution’s buy or sell decisions.

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