Stock Alert: How IPO lock-in period impacts stock price?

Here’s a look at how the lock-in period of anchor investors impacts the recently listed companies’ stock prices. 

Stock price may come under pressure

On August 23, recently listed food delivery company Zomato’s stock price dropped by 8%. Interestingly, this was on the day when its anchor investors’ lock-in period ended. According to experts, anchor investors booked profits as the initial public offering (IPO) had delivered bumper listing gains. 

Similarly, SBI Cards’ share price fell 15% on April 15 as its anchor investors’ lock-in period ended. However, unlike Zomato, SBI Cards’ had a subdued debut on the stock exchanges. 

Now, let’s take a look at the recently listed companies, whose anchor investors’ lock-in period is set to end soon. 

Good to know

Who are IPO anchor investors?

IPO anchor investors are big institutional players like mutual funds and sovereign wealth management companies. Ahead of the launch of the IPO, these big investors subscribe for its shares in large quantities. According to the Indian market regulator, Securities and Exchange Board of India (SEBI), an anchor investor should make an application of at least ₹10 crore. 

What is a lock-in period for an IPO?

A lock-in period refers to a timeframe when investors are not allowed to sell their shares. For anchor or big institutional investors, the lock-in period for an IPO is 30 days after the allotment. This is because they are given the advantage of buying the shares before the IPO is open for subscription. Also, the imposition of a lock-in period helps in providing stability to the share price in the initial days post listing. Also, the participation of anchor investors provides helpful signals to retail investors. For instance, if the fundamentals of a company are weak and its valuations are high, then it would receive tepid response from anchor investors.