Investors lapping up IPOs for quick gains, says Sebi

Disposition Effect

♦ 144 IPOs listed during April 2021-Dec 2023

♦ Total of Rs2.13 lakh cr mobilized

♦ 65% of total issue size was Offer for Sale

♦ Through OFS, pre-existing shareholder sold their shares

New Delhi: A study by markets regulator Sebi highlighted flipping behaviour among investors in the initial share-sale market with investors (excluding anchor) selling 54 per cent of IPO shares allotted to them by value within a week.

The study found a strong disposition effect (tendency to prematurely sell assets that have made financial gains) with investors showing a greater propensity to sell IPO shares that posted positive listing gains, compared to those that listed at a loss. In light of the increasing participation of retail investors and the heightened oversubscription in recent IPOs, the Securities and Exchange Board of India (Sebi) conducted an in-depth study to analyze investor behaviour in main-board IPOs. The study encompasses data from 144 IPOs listed between April 2021 and December 2023.

During the study period, 144 IPOs collectively raised a total of Rs2.13 lakh crore. Notably, 65 per cent of the total issue size was Offer for Sale (OFS), through which the pre-existing shareholder sold their shares, instead of the company raising the money. According to the study, “About 54 per cent of IPO shares (in value terms) allotted to investors (excluding anchor investors) were sold within a week from listing”.

Individual investors sold 50.2 per cent shares (in value terms) allotted to them within a week from listing, non-institutional investors (NIIs) offloaded 63.3 per cent shares and retail investors sold 42.7 per cent shares. Interestingly, individual investors sold 70 per cent of shares by value within a year.

On the other hand, mutual funds tend to invest for a longer period in IPO shares, whereas banks tend to sell swiftly.

Mutual funds sold about 3.3 per cent of allotted value within a week, as compared to 79.8 per cent for banks. The study highlighted that returns influenced the selling behaviour as individual investors sold 67.6 per cent of the shares by value within a week when IPO returns exceeded 20 per cent within a week.

In contrast, only 23.3 per cent of shares by value were sold when returns were negative. In terms of geography, retail investors from Gujarat received 39.3 per cent of the allotment in the category, followed by Maharashtra (13.5 per cent), and Rajasthan (10.5 per cent). The increase in IPO participation could be derived from growth in demat accounts.