54% Of IPO Shares Allocated To Retail Investors Sold Within A Week: Sebi Study
The study highlighted a strong trend among investors to sell assets that appreciated while holding onto those that depreciated
A study by the Securities and Exchange Board of India (Sebi), released on 2 September, revealed that more than half of investors in IPOs from April 2021 to December 2023 sold their shares within a week of listing, with 70 per cent of shares by value sold within a year.
The study highlighted a strong trend among investors to sell assets that appreciated while holding onto those that depreciated. Sebi analysed investor behaviour across 144 Main Board public issues and found a high prevalence of "flipping" among individual investors.
Investor behaviour was heavily influenced by returns, with 67.6 per cent of shares by value sold within a week when IPO returns exceeded 20 per cent, compared to only 23.3 per cent when returns were negative. This rush into IPOs coincided with a significant increase in demat accounts, many of which were opened after the Covid-19 pandemic.
The study found that nearly half of the demat accounts used to bid in IPOs between April 2021 and December 2023 were created between 2021 and 2023. Additionally, 85 per cent of the demat accounts involved in these IPOs were opened between 2016 and 2023.
During this period, 144 companies launched Main Board IPOs, with 26 of them seeing stock prices surge by more than 50 per cent on the first day of listing. Furthermore, 92 IPOs were oversubscribed by more than 10 times, while only two were undersubscribed. Despite some post-listing underperformance, investor enthusiasm for new IPOs remained strong.
The geographical distribution of IPO investors showed that 70 per cent came from Gujarat, Maharashtra, Rajasthan, and Uttar Pradesh. Gujarat led in retail IPO allotments, receiving 39.3 per cent of the total, followed by Maharashtra (13.5 per cent) and Rajasthan (10.5 per cent).
In the Non-Institutional Investor (NII) category, Gujarat also topped with 42.3 per cent of the allotment, followed by Maharashtra (20.4 per cent) and Rajasthan (15.5 per cent).
The Sebi study also found a positive correlation between first-week listing gains and the percentage of shares sold within a week by retail and NII investors. IPOs with over 20 per cent gains within a week saw NIIs exiting 79.1 per cent of their shares, compared to an average exit rate of 63.3 per cent, while retail investors exited 61.9 per cent of their shares, compared to an average of 42.7 per cent.
The study noted a similar positive correlation between IPO subscription levels, listing day returns and the percentage of shares sold. Higher subscription levels were associated with higher listing day returns and a greater exit of investors.
The Sebi study also highlighted the impact of regulatory changes. Following RBI's guidelines on IPO financing by NBFCs, oversubscription in the NII category dropped from 38 times to 17 times. The average number of NII applications seeking over Rs 1 crore in IPOs fell significantly from approximately 626 per IPO to around 20 per IPO after Sebi's policy changes in the NII share allotment process.
