Meesho Shares Locked In Lower Circuit — Five Key Reasons Behind The Decline

Shares of Meesho Ltd. were locked in the lower circuit on Monday, falling 10% and extending losses for a second consecutive session. The decline comes after a sharp 43% rally over just four trading sessions between Dec. 15 and Dec. 18, underscoring the heightened volatility surrounding the stock.

The scrip fell as much as 10% to Rs 201.68 apiece on Monday, hitting a lower circuit.

Here are five key reasons behind the sharp sell-off:

Low Free-Float Amplifying Volatility

Meesho has a relatively low free-float, with a limited number of shares available for trading in the secondary market. Such constrained supply often leads to exaggerated price movements, both on the upside and downside. After the recent surge, even modest selling pressure has been enough to push the stock into a lower circuit.

Pullback After Intense Early Demand

The strong rally seen in mid-December was largely driven by aggressive early demand and short-covering. As that buying interest tapered off, profit-taking set in, triggering a natural pullback. With momentum reversing quickly, the stock faced sharp downside pressure.

Profitability Remains Uncertain

Despite strong top-line growth and a differentiated social commerce model, Meesho's path to sustainable profitability is still unclear. Investors remain cautious about the timeline for consistent earnings, particularly in an environment where funding costs are higher and the market is placing greater emphasis on profitability over growth.

Valuations Leave Little Room For Error

On a three-year forward basis, Meesho is valued at around 40x EV/Ebitda, broadly in line with peers such as Eternal and Nykaa. However, given Meesho's current profitability profile, these valuations appear expensive to some investors, increasing the risk of sharp corrections on any negative trigger.

Rising Competitive And Regulatory Risks

Competition in the e-commerce and social commerce space continues to intensify, with both established players and new entrants vying for market share. At the same time, regulatory scrutiny around product quality and seller compliance has increased, adding another layer of risk to the business model.

What To Watch Next

A key near-term event for investors is Jan. 7, when the lock-in period opens for around 11 crore shares, representing roughly 2% of Meesho's equity. The potential increase in tradable shares could add to supply in the market and influence stock price movements in the near term.

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