Nykaa and Policy Bazaar slide as one-year lock-in period nears end

The share price of FSN E-Commerce Ventures, the parent company of Nykaa, ended below the stock's IPO price for the first time since its listing. The stock on Tuesday closed at Rs 1,111, down 2.9 per cent over previous day’s close. So far this month, Nykaa’s shares have declined nearly 13 per cent. Shares of PB Fintech, the company which operates Policy Bazaar portal, too have corrected nearly 20 per cent this month. Shares of Policy Bazaar, which got listed a few days after Nykaa, last closed at Rs 385.

The sharp selloff in these two stocks has come ahead of the end of one-year post-IPO lock-in period, which ends next month. Last year, Nykaa and Policy Bazaar were listed on November 10 and November 15, respectively.

Selling pressure is seen whenever the lock-in period meant for IPO anchor investors ends, particularly in companies backed by private equity investors. This trend was first witnessed in the case of Zomato in July. After the end of its one-year lock in period, investors such as Uber, Tiger Global and Moore Ventures had divested their holdings in Zomato after the end of one-year lock up.

Both Nykaa and Policy Bazaar have PE funds and wealthy investors as their shareholders.

The Securities and Exchange Board of India (Sebi) had cut the lock-in period for investors who buy shares in a pre-IPO issue, or promoters' shareholding in excess of 20 per cent, to six months from one year. However, stocks listed before April 2022 have a one-year lock-in. The lock-in of around 19 stocks is expiring in November and is expected to be a  source of turbulence in the markets, say market players.

"Most of the lock-in investors must be sitting on huge amounts of profits, and they are likely to sell. Investors when they are not allowed to sell for a long time, exit at the first available opportunity if they are sitting on gains," said Ambareesh Baliga, independent equity analyst.

“What went in favour of Nykaa during its IPO was its profitability and the goodwill of its promoters. But pricing was on the expensive side. We have seen their results for the last three quarters, there is nothing to entice new investors to buy the stock,” he added.

Shares of Nykaa have more than halved from their peak. Policy Bazaar has seen a deeper cut. It is down 74 per cent from its record high and 61 per cent over its issue price of Rs 980. One 97 Communications (Paytm), which too had listed in November last year, is down 70 per cent over its issue price but is up nearly 3 per cent this month.