Stock brokers use anchor allocation to favour clients, process 'has to be sorted': Samir Arora

Helios Capital's Samir Arora said, "Better to distribute these stocks directly to retail instead of first giving to favored funds who flip to retail."

The allocation made to anchor investors during an initial public offering (IPO) is being gamed by stock brokers who want to reward certain clients, according to Samir Arora.

The brokers keep giving it to the same set of investors/funds who then "flip" it to retail clients, for a quick profit. Anchor investors are meant to give confidence to retail investors, who participate more enthusiastically seeing institutional interest.

Veteran investor and founder of Helios Capital, Arora posted, "This anchor business has to be sorted. Other than the brokers using allocation control to reward/pay back their favored clients, there is no other benefit to anyone."

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Arora pointed to the suspicious manner in which the same funds and investors keep appearing as anchors, and to the very small possibility that these funds would be holding these stocks for even as long as a year.

He wrote, "Imagine if there are 150 IPOs in a year and the same FII/MF gets anchor in say 75 (it is normally the same names again and again in every anchor book): Does anyone believe that at the end of the year the said fund is owning 75 extra stock names that they got as anchors, no way."

He added, "These funds just take the allocation, flip and move on to the next. Better to distribute these stocks directly to retail instead of first giving to favored funds who flip to retail."

The Managing Director of NAV Capital, Vineet Arora offered a counter point of view, saying that not all anchor investors are out to do this.

Sharing Nav Capital's Emerging Star Fund's performance, Vineet posted that they are still holding 90 percent of what they bought as an SME IPO anchor investor.

He posted, "We are holding 90%+, rather bought but not sold. Can't generalize. This is SME but same for main board as well for us."

It had details of IPOs done between September 27, 2022, and November 16, 2023.

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Arora agreed with Vineet, that his observation on the behaviour of anchor investors "cannot be generalised".

In April 2022, lock-in period for anchor investors was extended. While the lock-in period for one half of their allocation ends after 30 days, the lock-in period for the remaining half of their allocation ends only after 90 days.