Shares of Falguni Nayar-led online beauty retailer Nykaa are witnessing a storm in the stock markets as heavy offloading of Nykaa shares seems to have gained momentum.

The latest to join the bandwagon is Mala Gopal Gaonkar which sold Rs 1,009 crore worth of FSN E-Commerce Ventures, the parent company of Nykaa shares, in a bulk deal on BSE.

Meanwhile, Canada Pension Plan Investment Board was a buyer that bought almost Rs 299.35 crore worth of Nykaa shares.

While according to data, Mala Gopal Gaonkar sold 5.75 crores worth of shares at an average price of Rs 175.48 per share; on the other hand, Canada Pension Plan Investment Board bought 1.7 crores Nykaa shares at Rs 175.25 apiece.

The Heavy Selling Of Nykaa Shares

The one-year lock-in period for Nykaa pre-IPO shareholders expired last Thursday, and the scrip also turned ex-bonus on the same day. Since then, the scrip has been seeing heavy turnover.

On Wednesday, Lighthouse India Fund III sold in a bulk deal three crore FSN E-Commerce Ventures, Nykaa, worth Rs 525.39 crore.

These shares were sold at an average share price of Rs 175.13 apiece.

On November 10, the same fund also sold 96,89,240 Nykaa shares at an average price of Rs 171.75 per share. 

Nykaa stock plunged 4.69 per cent to close at Rs 183.05 on NSE while it settled at Rs 184.50 on BSE, down 3.91 per cent.

Other Sellers

• Segantii India Mauritius sold Nykaa shares 33,73,243 at Rs 199.34 a piece on Tuesday; it had bought 37,92,489 Nykaa shares at an average price of Rs 171.75 on November 10. 
• TPG Growth IV SF PTE was too a seller; the same day, TPG Growth sold 1,08,43,050 shares at Rs 186.40 apiece.

How can Investors lose money by selling the bonus shares of Nykaa?

For those who have been holding Nykaa shares and were excited about the recent bonus issue, well, for those investors, this article will come as a dampener to their high spirits. 

Those who invested in the Nykaa IPO and have just been allotted the bonus are in for a lousy surprise!

Why? Because as we go deeper into this article, it will spell out how keeping or selling the Nykaa shares will be a lose-lose situation in either of the cases. 

On the one hand, the investor will end up making a huge capital loss on the shares allotted originally, and at the same time, the investor will make an intelligent gain on the bonus shares. 

So wherein lies the problem, an investor would ask?

The problem is that an investor’s loss on the original IPO shares cannot be written off against the gains the investor makes on the bonus shares. 

Hence this indicates that it will be a double loss for such IPO investors, and here is how an investor can lose money.

Before we get into the specifics of it, firstly, let us understand the bonus issue and how bonus shares are taxed. 

Now Post bonus, the capital gains are calculated as usual for the base number of shares, but the acquisition cost is deemed zero in the case of bonus shares.

At the close of November 15, the stock of Nykaa had closed at Rs192.50. Nykaa has declared a bonus of 5:1, i.e. investors will get 5 bonus shares of Nykaa for every share held. 

Thus, if an investor has been allotted 100 shares of Nykaa in the IPO at Rs1,125 per share, you would be holding 600 shares at an average cost of Rs187.60. 

Now the problem, for example, an investor has been allotted 100 shares originally, there is a notional loss of Rs. 932.50 (1125 – 192.50)

Now since the investor has held the Nykaa shares for more than 1 year, it comes under a long-term capital loss of Rs. 93,250

Since these shares are held for more than 1 year, it will be a long-term capital loss of Rs93,250. 

Now consider the bonus shares; the acquisition cost here is zero; hence on the entire notional gains of Rs192.50, tax is payable on 500 shares. 

That works out to a short-term capital gain of Rs96,250. 

Under the current tax regime, this short-term capital gain will attract tax at 15%, but one cannot write off long-term losses against short-term gains; hence, the investor loses both ways.

An average retail investor who had bought in the IPO and held on for a year in the hope of paying lower tax on capital gains will be a case of heads I lose and tails I don’t win. 

The bonus may be a clever way to reduce the heavy selling that usually happens at the end of one year. 

There is another challenge that many investors are facing. 

Due to the last-minute change in the record date for the bonus, many investors were left in the doldrums where the stock had gone ex-bonus, but the bonus shares had yet to be credited.

Conclusion: Regulators (SEBI) need to be more vigilant when it comes to companies listing their IPOs in the stock markets.

We have clearly seen Paytm, Zomato, Nykaa and Policybazaar wipe out almost 53% of the public investor’s money; how much more?

The regulators need to bring in stricter norms when it comes to new-age tech firms making huge losses but still being listed on the stock markets.

An average retail investor who has been shown the carrot of the ‘potential of growth’ by the respective company finds out too late that this carrot is actually the ‘story of sour grapes.’

The retail investors who had bought into the carrot story are not having a very happy time with Nykaa. Their long wait has almost been unfruitful, and now that the bonus has been issued, possibly to control the heavy selling that usually happens at the end of the one-year lock-in period, they find that they benefit neither this way nor that!