A new study by markets regulator Securities and Exchange Board of India (SEBI) revealed that over half of the investors in IPOs between April 2021 and December 2023 sold their shares within a week of the listing. The study also found that within a year of listing, this figure increased to 70 percent by value.
“Individual investors sold 50 per cent of the shares allotted to them by value within a week of listing, and 70 per cent of shares by value within a year,” the study read.
Sebi noted a clear pattern in investor behavior: selling assets that have appreciated in value while retaining those that have depreciated. Their study, which analyzed investor actions in 144 Main Board public issues, revealed that "flipping" was widespread among individual investors.
The markets regulator found that investor behavior was strongly influenced by returns. When IPO returns exceeded 20 percent, investors sold 67.6 percent of shares by value within a week. Conversely, only 23.3 percent of shares by value were sold when the returns were negative.
“The study found a strong disposition effect, with investors showing a greater propensity to sell IPO shares that posted positive listing gains, compared to those that listed at a loss,” it added.
The surge in interest for public issues is also driven by an increase in demat accounts established after the Covid-19 pandemic. Approximately half of the demat accounts that applied for IPOs between April 2021 and December 2023 were opened during the post-COVID era.
Following the RBI's guidelines on IPO financing by NBFCs, Sebi observed that the over-subscription rate in the NII category decreased from 38 times to 17 times.
Following Sebi's policy changes in the NII share allotment process, the average number of applications from Non-Institutional Investors (NII) seeking more than ₹1 crore in IPOs decreased from about 626 per IPO to roughly 20 per IPO.
“The average number of applications from NII investors applying for more than ₹1 crore in IPOs dropped from approximately 626 per IPO in the pre-policy period (April 2021 -March 2022) to around 20 per IPO in the post-policy period (April 2022 -December 2023),” the study said.
Incidentally while speaking at a summit by the Confederation of Indian Industry (CII), the Whole Time Member Ashwani Bhatia said that there was an increase in the number of IPOs of small and medium enterprise and investor participation therein since 2012. "During the last decade, more than ₹14,000 crores has been raised through this platform of which ₹6000 crores was raised during the last financial year. In recent years, listing on SME platforms has seen increased traction and annual listing on the SME platform through IPOs has increased four-fold over the last five years from 46 in 2020 to 196 in the last financial year. The amount of fund raise through IPOs have increased 12-fold over 5 years from ₹495 crores to ₹6096 crores. The market cap is currently about ₹2 trillion crores"
He also advised a word of caution to the merchant bankers, chartered accountants and exchanges to diligently check documents being filed for issues.
"What we have seen is that the checks and balances are simply not there. Nobody is actually saying no to the applicants. Maybe the diligence that is required of the CAs, merchant bankers, exchanges is possibly missing. They need to do some hard work over there. An analogy can be drawn with a doctor. Good doctors to companies do not give steroids when they can survive on paracetamol", he said.
Last week, Sebi had issued an advisory to investors to be cautious of the disclosures being made by the SME IPOs. During his address today, Bhatia said that if companies try to take shortcuts, inflate balance sheets, the relationship between them and intermediaries will be short one.
