The bigger they get, the harder they fall. This phrase is apt for the country’s largest-ever initial public offering (IPO) from One97 Communications, the parent company of Paytm, a digital payment solution provider. The ₹18,300-crore issue ($2.47 billion) is off 53% from its issue price of ₹2,150, and is currently trading at ₹997. In fact, the stock has been on the decline ever since it listed at ₹1,950, a discount of 9.3% to its offer price.

The slide, according to market sources, has also been accentuated by the selloff by anchor investors, including the likes of Blackrock, Canada Pension Plan Investment Board, Singapore’s GIC and domestic fund houses. Paytm had allotted shares worth ₹8,235 crore to the anchor investors ahead of its IPO, thereby securing 45% of its IPO book. While Blackrock reportedly invested ₹1,045 crore, CPPIB had put in ₹938 crore and GIC ₹533 crore. But the story has turned nightmarish for institutional investors ever since the lock-in expired on December 15, 2021.

In fact, Paytm leads the pack of IPOs in CY21 where prices have tanked after the lock-in expiry period ended, according to data from Prime Database. The losers include One97 Communications, Fino Payments Bank, Kalyan Jewellers, SJS Enterprises, Suryoday Small Finance Bank, Windlas Biotech, Craftsman Automation, Aditya Birla Sun Life AMC, Cartrade Tech, Krsnaa Diagnostics, Easy Trip Planners, Glenmark Life Sciences, Nuvoco Vistas, Aptus Value Housing, Tarsons Products, Indian Railway Finance Corp, Chemplast Sanmar and Heranba Industries. Losses range between 1% and 35%.

An anchor investor is defined as a qualified institutional buyer (QIB) who makes a bid under an IPO for a minimum ₹10 crore. Up to 30% of an issue can be allotted to anchor investors. Of the allocation, one-third is reserved for domestic mutual funds. These preferred sets of investors get shares a day before the issue opens for the public. They cannot sell shares for 30 days after the allotment, which the Securities and Exchange Board of India [SEBI] has now proposed to increase to 90 days. The new rule will be applicable for at least 50% of the shares allotted to anchor investors.

Thirty three IPOs saw anchor investors gain between 1% and 436% in 2021. Top four issues that gained between 111% and 436% include Ami Organics, Sigachi Industries, Latent View Analytics, and Paras Defence & Space Technologies. Though no official data is available on the quantum of selling by anchor investors, a reasonable guess can be made based on the price action on the following day of the expiry of the lock-in period. The top two issues, Paras Defence and Latent View, for instance, came off 5% and 10%, respectively.

In most cases, anchor investors participate in an issue to ensure confirmed allocation, says Siddharth Khemka, head of research, MOFSL. While bankers hold roadshows to ensure a “price discovery”, in most cases the price at which anchor investors come in is, usually, at the upper end of the price band.

“It’s a tacit understanding where investment bankers tell these investors to “support” an issue where the fundamentals may not be exactly strong in lieu of the assured allotment in another issue, where demand from investors will be overwhelming,” says Ambareesh Baliga, an independent market expert.

Issues where anchor investors lost money include Glenmark Life Sciences and Nuvocos Vistas Corp. “While issues of firms from new sectors such as consumer tech, including the likes of Zomato and Nykaa have done well, life sciences and cement have not found favour,” says Khemka.

In 15 new issues anchor investors have made gains higher than the listing day, while in four IPOs the gains were nearly on par. In 14 IPOs retail investors had an edge over anchor investors — anchor investors made higher losses compared with retail investors on listing day, ie, losses at the end of lock-in day expiry were higher than that of listing day.

One cannot compare gains made by retail investors with those of anchor investors, given the sheer difference between the nature of allotment, says Pranav Haldea, managing director, Prime Database. While retail investors get shares ranging between a few hundreds to thousands, anchor investors are at the extreme end of the spectrum and get large quantities at fixed prices.

Going ahead, with SEBI extending the lock-in period, anchor investors will face testing times if markets turn volatile. But, given that retail investment flow into MF schemes is on the rise, funds will continue to line up as anchor investors, irrespective of the risks involved.

Follow us on Facebook, Twitter, YouTube & Instagram to never miss an update from Fortune India. To buy a copy, visit Amazon.