Bajaj Housing Finance Shares Drop After IPO Lock-in Period Ends 9 oct: Key Insights

Bajaj Housing Finance Shares Drop After IPO Lock-in Period Ends 9 oct: Key Insights

The stock price of Bajaj Housing Finance dropped sharply by 4.5% following the expiry of the IPO lock-in period where 126 million shares were released into the open market for trade. Dramatic declines tend to happen, coincidentally, whenever such pre-IPO investors, who may also include insiders of the issuing company as well as institutional shareholders, are permitted to sell out their stakes following the end of the regulatory lock-in period.

What is an IPO Lock-in Period?

The IPO lock-in period is that time, say, six months during which the promoters, insiders, and other biggish shareholders in the company are restricted from selling post-IPO. This mechanism prevents the selling of too many shares immediately after the public offering in a company thus imparting stability and preventing volatility in stock prices. But as soon as the lock-in period elapses, it can move price by a huge amount because the shares become available en masse.

The lock-in period of Bajaj Housing Finance ended on 9 October 2024 as 126 million shares were allowed to float in the market. A further lock-in period will expire in December 2024, which might unleash added volatility down the line.

Share Price Impact

With a large amount of shares coming into the market, supply increases manifold, and subsequently the pressure on prices pulls it downward. In the case of Bajaj Housing Finance, this was directly reflected in the 4.5% price drop induced by the company which brought out 126 million shares into the market. This is however not an isolated case but occurs in most such cases when the lock-in period expires. Bharti Hexacom and Ola Electric Mobility are some of the others who faced a huge price downfall immediately after lock-in expiry​

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After a steep drop, a few retail investors among them may have even sounded an alarm bell, however, many analysts still look forward to bright long term prospects for Bajaj Housing Finance in such a soundly solid housing finance space. Bajaj Housing Finance continues to enjoy strong fundamentals, diversified portfolios, and a healthy demand for home loans in India.

Why Do Prices Fall After Lock-in Periods?

The primary reason for the decline is the rising supply into the market. When lock-in periods mature, the initial investors wish to liquidate their investments. In fact, they might have considerably acquired profits since the date of the IPO. The huge selling activity causes the stock price to decline in most instances. Institutional investors and insiders own a substantial amount of shares in companies, and when they sell, panic selling among individuals triggers.

Institutional investors might also sell part of their holdings to realign funds elsewhere, and insiders sell based on personal financial needs. This panic selling creates an overhang of supply which sometimes outstrips demand in the panic situation; the price continues to fall.

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For example, such selling spree has been observed after the end of their respective IPO lock-in period in the cases of Bharti Hexacom, Mankind Pharma, and Indegene, among others.  

For instance, Mankind Pharma is set to announce around 80 million shares in November, while Ola Electric Mobility is going to unlock 182 million shares from early November. Market experts say the price actions for these stocks will be similar, as millions of shares are going to hit the market​

Bajaj Housing Finance Long Term Outlook

Lock-in expiration took the Bajaj Housing Finance stock to a 4.5% decline in stock price, but the medium-term prospects are bright and robust. So far, the company has been a leading player in the booming housing finance sector in India, and it is getting stronger with each passing day as demand for home loans is on the rise in the country due to urbanization and government policies to make its housing cheap.

Analysts have remained of the view to maintain a “hold” or “buy on dips” call on Bajaj Housing Finance. They do hope that the stock will stage a recovery once the initial shock of lock-in expiration wears off. The company’s focus on maintaining healthy asset quality and its growing loan book, therefore are expected to help it weather through any volatility.

Conclusion:

The release of IPO lock-in periods is one of those things that has implications for the stock of any company as a large number of shares are released into the market. Bajaj Housing Finance thereby saw its stocks decline by 4.5%. Declines like these are short-term phenomena, and long-term recovery is expected when the market absorbs the excess supply. Thus, with a solid foundation and a positive outlook in the industry, Bajaj Housing Finance goes along well even in the short term, and it is expected that this short-term dip will improve in the days ahead. During such periods, investors need to be cautious but look forward to the long-term performance of the company rather than its short-term movement in the market.

It is fairly important for investors eyeing investment into Bajaj Housing Finance or similar companies to understand how lock-in periods create short-term volatility and perhaps get one in by ensuring that if its fundamentals are well built, it can work as an opportunity to gain.
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Disclaimer:

All above recommendations are of the market analysts. Neither the author, nor the brokerage firm, nor Stockstoday.in will be responsible for any loss arising out of any such decision taken based upon this information. All users are cautioned to take their own expert advice prior to making any investment decision.

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