On Monday, the share price of food delivery major Zomato tanked and registered its steepest fall since listing after its anchor investors’ one-month lock-in period ended. The shares ended the session at Rs 127 apiece on the S&P BSE Sensex, an 8.8 per cent decline, on a day when the benchmark ended 226 points, or 0.41 per cent, higher.
Around 68 million Zomato shares were traded on the NSE on Monday, 54 per cent higher than the two-week average of 44 million shares. Analysts said the higher-than-usual trading volume is an indicator of anchor investors booking profits.
“The anchor investors got much more than what they had bargained for; it’s natural they book out,” said Ambareesh Baliga, an independent analyst.
Anchor investors are institutional investors who are offered shares a day before the initial public offering (IPO) opens. Strong anchor investor interest gives a fillip to the issue as investors across all categories consider anchor allotment before investing.
Anchor investors cannot sell their shares for 30 days after the allotment. Markets regulator Securities and Exchange Board of India (Sebi) introduced the rule to stop investors who sell on listing day from using the anchor date to buy shares.
Zomato got listed at Rs 115 a share, 51 per cent above its issue price, and so far, the stock had gained up to 94 per cent.
Zomato’s IPO drew bids worth Rs 2.1 trillion and it was subscribed 40 times. The IPO was considered a test case for other tech start-ups waiting in the wings to go public. And many saw it as a sign that domestic investors are open to backing companies that are not making profits or conform to the normally accepted benchmarks.
Analysts said the food delivery industry would remain a duopoly, and Zomato will benefit due to its discount and cost discipline and demand inelasticity. In a note to investors, ICICI Securities said despite unlocking, tailwinds will continue for Zomato.
“Operational and other bottlenecks imposed by lockdowns in FY21 had optically masked the true demand potential in the system for food delivery. This translated into an artificially depressed base which we believe should see a sharp bounce back as operational bottlenecks ease. We are confident this bounce back will more than offset the unlock-led uptick in dine-ins in the near term,” said the brokerage.
However, some analysts expressed scepticism about the firm’s valuation.
“I will never give the company so many times multiples of its future turnover. I felt the IPO price itself was high. But it surprised us by doing well on its listing, but I think it is a function of euphoria. With the anchor lock-in ending, there will be a lot of selling pressure. The situation is such that retail investors have started worrying, though the index has been holding on, the broader markets have fallen and portfolios are hurting. In a stock like Zomato, if they had bought at a higher level, they may exit or not buy any more. If retail investors got an IPO allotment or bought on an opening day, they will book out. It will be one of the few stocks where they are making money,” said Baliga.