The lock-in period for shares of nine companies is set to expire in the month of Bhadra, potentially increasing the supply of shares in the stock market.
In the month of Bhadra, lock-in period for shares of nine different companies are ending. This includes shares belonging to promoters, local residents, employees, qualified institutional investors (QII), and mutual funds. Once the lock-in period ends, a large volume of shares will become tradable in secondary market, which could bring supply pressure on respective share prices.
Reliance Spinning Mills QII Lock-In Ending
On Bhadra 1, the lock-in period for 7 lakh 70 thousand 640 shares of Reliance Spinning Mills held by qualified institutional investors (QII) is expiring. This company came to public through the book building method, where QIIs bid at a set price. The cutoff price was determined through this process, and then IPO was opened for general public.
The public IPO of Reliance Spinning Mills was issued at a price slightly above Rs. 820 per share. Although the share price once reached near Rs. 5,000 in grey market, it has decreased significantly in recent times. Currently, the share price is around Rs. 2,560, and the QII lock-in is about to open. The lock-in for mutual funds already ended before, and now QII shares will also become tradable.
How Lock-In Periods Impact Market Prices
In Nepal stock market, lock-in periods have a big impact on share prices. When a company is newly listed, the number of tradable shares is very low, meaning supply is much lower than demand. In such times, even small buying pressure can push the share price up very fast. However, when lock-in period ends and a huge number of shares enter market, the sudden rise in supply can put pressure on prices.
On Bhadra 2, the lock-in period for 54 lakh 2 thousand 380 shares of Manakamana Engineering Hydropower held by promoters, locals, and employees will end. Only about 22 lakh shares were initially available for trading through public issue. Due to low supply, the price once reached Rs. 696, but recently fell to Rs. 279. Now investors need to look closely at the supply side as these shares become tradable.
Mandu Hydropower and Other Companies
Similarly, a huge volume of shares of Mandu Hydropower will see lock-in opening on Bhadra 23. The lock-in for around 1 crore 22 lakh shares of promoters, local residents, and employees is ending. Only about 16 lakh 36 thousand shares were initially in the market from IPO. Due to limited floating shares, the price once reached Rs. 932 but has now dropped to around Rs. 830.
These examples have raised questions regarding the lock-in system and real price discovery in Nepal stock market. Because the number of tradable shares is very low at first, and then a huge volume comes all at once, it creates unnatural price movements. People are debating if the lock-in rules are practical and if they help in proper price discovery. Previously, mutual funds had short lock-in and sold shares immediately after listing, causing issues. Then SEBON added lock-in for mutual funds, but now long lock-ins are creating supply shortage first and oversupply later.
Apart from Reliance Spinning Mills, Manakamana Engineering Hydropower, and Mandu Hydropower, other companies like Hotel Forest Inn and Suryakunda Hydropower will also see their lock-in end in Bhadra. While small mutual fund lock-ins might not affect the market much, large volumes from QII, promoters, and locals can increase supply pressure.
Key Factors for Investors to Consider
Investors should not only look at financial status of a company but also check how many shares are actually tradable. Knowing total shares, floating shares, lock-in shares, and lock-in expiry dates helps understand future supply. The market runs on demand and supply, so investors must evaluate the impact of incoming supply beforehand.
Currently, interest rates of banks are falling and there is enough liquidity, but it has not created the expected demand yet. Loan demand is low, so money is sitting in banking system. The market is looking for a strong trigger to move up.
Technically, NEPSE is in a sideways movement. After hitting above 3,400 in past, it faced a drop. The area between 2,450 to 2,600 has worked as a major support. NEPSE is now around 2,640, making the area between 2,650 to 2,660 very important. If market closes strongly above this range, the short-term downtrend might end. If it fails, it may test lower support again. Investors should focus on strong companies and watch trading volumes, as price rises without enough volume are not sustainable. Rather than deciding if price will go up or down just because lock-in is opening, watching the balance between supply and demand is more important.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
