Zomato’s fall from grace is the talk of the town. The stock plunged by 24.53% in just two days (25th and 26th July 2022) to new lows this week. But the question is, ‘WHY’? Why did the share see such a steep fall? Let’s find out.
Ever since its inception, the Zomato app has been everyone’s favourite. Whenever we have food cravings, we quickly scroll through Zomato to find the best deals.
But even after being the most preferred food delivery platform, Zomato is a loss-making company.
Not just that, since listing, the share price of Zomato has eroded investors’ wealth by 65.60% as of 27th July 2022.
But, something unusual happened on Monday. The share price of Zomato plummeted by 11% in a day!
Reason Behind the Fall
Zomato’s share price tumbled on Monday because the investors whose shares were locked in for a year ended on 23rd July 2022. The total locked-in shares amounted to Rs 613 crores since the IPO. As soon as the markets opened on Monday, many investors sold their shares. So, it led to selling pressure, and the stock plummeted to new lows.
As per block deal data, Moore Strategic Ventures dumped its entire holding of 4.25 crore shares at Rs 44 per share. The trade size was Rs 187 crore which was bought for Rs 191 crore before Zomato got listed.
Is Such a Sell-Off Normal? Is This Happening for The First Time?
Well, the answer is ‘no’. This is not happening for the first time.
Zomato’s anchor investors who invested in the company during the IPO had a lock-in period of a month which was unlocked on the 23rd August 2021, and the same day, the stock fell by 8%.
If we talk about other companies, on 13th April, 2020, SBI Cards declined by 15% after the lock-in period expired.
Recently, the lock-in period for anchor investors of LIC got over on 13th June 2022, and the share fell by 3.94% intraday.
What’s In It For Investors?
SEBI allots the lock-in period to prevent massive sell-off after the share lists on the stock exchange. This duration helps the share to stabilise. But, many times, it is seen that share prices experience selling pressure after the lock-in period expires. Hence, it is said that when the lock-in period expiry is near, stay cautious.
What Lies Ahead?
Similar to Zomato, there are a few more companies with zero promoters holding with a lock-in period of 1 year that will soon end.
These companies are CarTrade Tech Ltd, PB Fintech, and One 97 Communication (Paytm).
- CarTrade’s lock in period will end on 20th August 2022
- PB Fintech’s lock in will end on 12th November 2022
- PayTM’s lock-in period will end on 17th November 2022
Regarding Zomato, the company has allotted 4,65,51,600 shares to its employees at Re. 1 per share.
It will be interesting to see what happens next!
That’s it for today.
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*The stocks mentioned in the article are for informational purposes. This is not an investment advice.