68% HNIs, 43% retail investors flip IPO trades in first week, says Sebi chair Madhabi Buch

SEBI Chairperson Madhabi Puri Buch (File pic)

About 68 percent of non-institutional investors or high net-worth individuals and 43 percent of retail investors flip their trades in the first week of IPO listing, said Sebi chairperson Madhabi Puri Buch on January 19. "We have to acknowledge that the IPO market is a market of traders more than investors," she said.

When looked over a month's span, some 76 percent NIIs and 52 percent retail investors flip trades, Buch added.

Buch was addressing the AIBI Annual Convention 2023-24 on oversubscription of public issues in the recent history. For instance, in the final week of November 2023, five IPOs surpassed total bids worth Rs 2.5 lakh crore.

Also read: IPO frenzy: HNI bid size falls but number of applications rise

"If you are putting money in an IPO to flip trades, then it is a risk you are taking. But if you are a long-term investor, then retail investors should wait until the price discovery is more stable," she said.

On regulating NIIs and their nature of flipping trades, she said that Sebi had changed the allotment basis for this category a few years back and this conveys the regulator's line of thought. The Reserve Bank of India, too, has brought in regulations to slow down IPO financing. It has capped loans at Rs 1 crore on the amount that NBFCs can lend per borrower per issue.

"Our worry was that the concept of proportional allotment was causing a huge amount of leverage in IPOs. We have taken the decisions we had to take... Now, it is a free country," Buch said.

Also read: Sebi ready to allow contentious tranche investments again, if AIFs self-regulate: Official

In an IPO, the HNI category includes applicants who put bids worth more than Rs 2 lakh. In April 2022, market regulator Securities and Exchange Board of India (Sebi) changed the allotment rules in the HNI category. Earlier, allotment was done on a proportionate basis. Suppose, an HNI has applied for 100 shares and the IPO is oversubscribed 10 times, then the investor would get 10 shares.

Now, the allotment is done through a lottery. Sebi has categorised HNIs into big (Rs 10 lakh and above) and small (Rs 2-10 lakh) with two-thirds of the overall category reserved for the big ones and one-third for their smaller peers.