India’s fledgling technology sector faces a key test this month as lock-up periods on $14 billion worth of shares sold in initial public offerings expire, allowing billionaire backers including Warren Buffett and Masayoshi Son to sell.
Lock-ups end in November for four consumer-focused tech stocks, which have all slumped in the past month. Included are One 97 Communications Ltd., operator of payments service Paytm, and FSN E-Commerce Ventures Ltd., owner of beauty e-retailer Nykaa.
A relatively new phenomenon in India, high-profile tech IPOs have met with strong demand from the nation’s growing herd of retail investors, and seen by some as proving success for the Indian government’s efforts to foster startups. Market pros have been more neutral on the stocks, however, and regulators have sought clarity over valuations and fundamentals.
“Investors have become more demanding when it comes to expectations of future profitability from these businesses,” Tom Masi and Nuno Fernandes, co-portfolio managers at GW&K Investment Management LLC, said in an email.
India’s market for first time share sales boomed in 2021, raising a record $18 billion in proceeds amid high demand for tech issues in the low-rate early days of reopening after the pandemic. Overall offerings have slowed this year amid slumping tech stock prices, increasing rates and recession fears.
Paytm has lost the most among the recent tech debutants, now down 70% since its IPO, which was backed by global investors including Son’s SoftBank Group Corp., Buffett’s Berkshire Hathaway Inc. and Jack Ma’s Ant Group Co. The stock may face additional pressure after Nov. 15, when about $4.3 billion worth of shares is unlocked.
“There is a possibility that Softbank could take some profit since it was an early investor” in Paytm, Delhivery and PolicyBazaar owner PB Fintech, said Brian Freitas, an analyst who publishes on Smartkarma. Softbank has been selling down stakes in investments to fund its ongoing multibillion-dollar share buybacks, he added.
Another Indian tech unicorn Zomato Ltd. has already survived a similar challenge, with early investor Uber Technologies Inc. exiting the online food-delivery firm in August soon after expiry of the lock-up. The stock has gained 13% since then, though it is still down 17% since its IPO.
India’s stocks have outperformed most global peers this year, with the benchmark S&P BSE Sensex up more than 4% compared with a loss of more than 20% in the MSCI World Index. GW&K Investment’s Masi and Nuno note that investors looking to exit the disappointing tech stocks have other opportunities in equities as well as bonds, which are offering high yields.