SEBI study finds 54% of IPO shares allotted to retail were sold within a week

Individual investors sold 50% of shares allotted to them by within a week of listing, finds Sebi report

More than half of the investors in IPOs between April 2021 and December 2023 sold the shares within a week of listing, a study by capital market regulator Sebi revealed on September 2. This number rose to 70 percent of shares by value, within a year of listing, the study found.

Flipping Behaviour

A strong pattern of disposition was evident among investors, Sebi said, implying selling of assets that have increased in value while holding on to those that have decreased. Sebi's study was based on investor behaviour in 144 Main Board public issues, and found that "flipping" was highly prevalent among individual investors.

Returns heavily influenced the investor behaviour, Sebi found, as investors sold 67.6 percent of shares by value within a week, when IPO returns exceeded 20 percent. In contrast, only 23.3 percent of shares by value were sold on instances when the returns were negative.

This rush for public issues also stems from a trend of rise in demat accounts that were created after Covid-19.

In terms of the demat accounts that were used to bid for shares in the IPOs, the study found that almost half of the total allotted demat accounts for IPOs during April 2021- December 2023, were opened in the post-COVID period - between CY21 and CY23.

Furthermore, 85 percent of the total allotted demat accounts (for the IPOs under study) were opened in the last eight years between 2016 and 2023.

Also Read: Nine out of 10 equity F&O traders lose money, 84% of them are men, 75% under 40: SEBI study

The period between April 2021 and December 2023 saw a total of 144 new companies making their debut on the in the stock market through main board IPOs with as many as 26 of such offerings seeing their the stock price surge more than 50 percent on the day of listing.

Further, there were more than 90 IPOs — 92, to be precise — that saw subscription in excess of 10 times with a mere two IPO remaining undersubscribed.

Although, there were some laggards post listing, it did not deterred enthusiasm in new IPOs, stated the Sebi paper.

In terms of the geographical spread of investors, the study found that about 70 per cent of the IPO investors were from the top four states — Gujarat, Maharashtra, Rajasthan and Uttar Pradesh.

Interestingly, Gujarat cornered the maximum allotment in IPOs with retail investors from Gujarat receiving 39.3 per cent of the cumulative allotment in the retail category, followed by Maharashtra (13.5 percent), Rajasthan (10.5 percent).

In the NII category as well, Gujarat occupied the top position with getting about 42.3 per cent of the total allotment in NII Category, followed by Maharashtra (20.4 percent) and Rajasthan (15.5 percent).

Not surprisingly, a clear positive correlation was found between the first week listing gain and percentage of shares exited within a week by retail and NII category investors.

According to the Sebi study, the IPOs which witnessed a gain of more than 20 per cent within a week witnessed NIIs exiting 79.1 percent of their shares within a week - compared to average exit of 63.3 per cent - while retail investors exited 61.9 per cent shares, when returns were very high (compared to average exit of 42.7 per cent).

Also Read: 70% individual investors in equity cash segment incurred losses in FY23: Sebi study

A similar positive correlation was observed between IPO subscription, listing day returns, and exit of investors in terms of percentage of shares sold in value terms. Higher subscription was associated with higher listing day returns and in turn higher exit by investors.

“For individuals, the exit from IPOs roughly doubled from the oversubscribed IPOs in the range 5x-10x, compared to those in the range 1x-5x,” stated the Sebi study.

Regulatory Effect

Soon after RBI’s guidelines on IPO financing by NBFCs, Sebi noted that over-subscription in the NII category halved, from 38 times to 17 times.

The average application from Non-Institutional Investor (NII) category seeking over Rs 1 crore in IPOs fell from approximately 626 per IPO to around 20 per IPO, after Sebi's policy interventions in the NII share allotment process.