2 days ago
Smallcap Funds Hold IPO Stakes Beyond Lock-In Periods
Mutual funds put money into smaller companies when those companies sell shares to the public.
These funds are allowed to sell some shares after a required waiting period.
Many mutual funds are choosing to keep their shares for longer.
They say the companies may grow over time and are worth holding.
Foreign investors often sell more quickly because they have other investments around the world.
Smallcap funds have received a lot of new money in recent years.
Their assets reached Rs 4.37 trillion after growing quickly.
One example, Omnitech Engineering, saw its share price rise sharply after its IPO.
Some observers worry that funds may be concentrating too much money in a limited number of new companies.
Smallcap funds are increasingly retaining anchor investments in IPOs after mandatory lock-in periods end.
Securities and Exchange Board of India data found mutual funds sold 15% of anchor allotments by day 90, versus faster selling by foreign portfolio investors.
Smallcap fund assets under management grew 42% annually over four years to Rs 4.37 trillion.
Fund managers say they are making long-term bets on fundamentally strong smaller companies rather than seeking quick listing gains.
Nippon India Small Cap Fund retained a 7% stake in Omnitech Engineering, whose shares rose 180% after its March 2026 IPO.
- Who
- Domestic mutual funds, especially smallcap funds, and foreign portfolio investors.
- What
- Mutual funds are holding anchor IPO investments beyond lock-in periods and taking concentrated positions in smaller companies.
- Where
- India’s mainboard IPO and mutual-fund markets.
- When
- The Securities and Exchange Board of India study covered April 2022 to October 2025; the Omnitech Engineering example followed its March 2026 IPO.
- Why
- Fund managers say they have conviction in the companies’ fundamentals, while selling and rebuilding large positions could be costly.
Long-Term Conviction
Concentration Concerns
Why funds retain IPO shares
Long-Term Conviction
Fund managers say they are backing fundamentally strong smaller companies for the long term and would rather hold a good-performing stock than search for another opportunity.
Concentration Concerns
Sceptics argue that smallcap managers may have few attractive opportunities beyond taking larger positions in newly listed companies.
Size of fund positions
Long-Term Conviction
Managers say concentrated holdings reflect their highest-conviction ideas and represent only a small percentage of each fund’s overall portfolio.
Concentration Concerns
The reported holdings show that some funds own more than 5% of numerous smaller companies, raising concerns about concentration and exposure to less-liquid stocks.
Anchor allocations
Long-Term Conviction
An anchor allocation gives large funds institutional-sized volume at the IPO price and avoids the price impact of building a position in the secondary market.
Concentration Concerns
Selling early can be difficult or undesirable if the investment is performing well, but retaining positions may limit flexibility to redeploy capital elsewhere.
Key facts
- Smallcap fund AUM
- Rs 4.37 trillion, after growing 42% annually over four years.
- Largecap fund AUM
- Rs 4.13 trillion, after growing 17% annually over four years.
- Sebi study
- Analysed 242 mainboard IPOs between April 2022 and October 2025.
- Mutual-fund exits
- Funds sold a weighted average of 3% of anchor allotments after 30 days, 7% after 60 days and 15% after 90 days.
- One-year comparison
- Across 167 IPOs, mutual funds sold 38% of anchor allotment value over 365 days, compared with 60% for FPIs.
- Omnitech Engineering
- The stock listed at Rs 202 and later rose 180% to Rs 573.
- Nippon India Small Cap Fund
- The fund had Rs 78,957 crore in AUM and held 7% of Omnitech Engineering, equal to 0.67% of its portfolio.
Quotes
Gaurav Kulshreshtha
Chief investment officer at Nexedge Capital
“It is not the question of opportunities. In fact, they are taking long-term bets where they have maximum conviction, and that is how a small and midcap fund manager is expected to behave”
rediff.com
“For large fund houses managing substantial AUM, accumulating a meaningful position directly in the secondary market often causes severe price impact and pushes up acquisition costs.”
rediff.com
Sources
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