Do you know what SEBI’s recent study on Initial Public Offerings- IPO reveals?
India’s IPO scene has been wild lately, and for good reason. Out of the 144 mainboard IPOs listed between April 2021 and December 2023, 75% have delivered positive returns. In fact, 26 of these IPOs gave investors a +50% return on the very first day!
No wonder there’s so much excitement and oversubscription, with everyone hoping for a big jump on listing day. A new study by SEBI backs this up, highlighting key trends and behaviors in the market.
Here are the top takeaways:
- Flipping Behavior: About 54% of IPO shares (excluding anchor investors) are sold within a week of listing, highlighting a trend of quick selling by investors.
- Individual Investors’ Actions: Overall, 50.2% of shares allotted to individual investors are sold within a week of listing.
- Non-Institutional Investors (NIIs) sold 63.3% of their shares by value, while Retail Investors sold 42.7%.
- Institutional Investors’ Approach: Mutual Funds tend to hold IPO shares longer, selling only 3.3% of allotted shares within a week. Banks, on the other hand, sell quickly, with 79.8% of shares sold within a week.
- Disposition Effect: Investors are more likely to sell IPO shares that show positive gains shortly after listing than those showing a loss.
- Profit vs. Loss Selling: Individual investors sold 67.6% of their shares when returns were above 20% within a week, while they sold 23.3% when returns were negative.
- Geographical Distribution: 39.3% of retail investors were from Gujarat, followed by Maharashtra (13.5%) and Rajasthan (10.5%).
- Post-COVID IPO Trend: Nearly half of the demat accounts used for IPO applications between April 2021 and December 2023 were opened during the post-COVID period (CY2021-CY2023).
- Regulatory Changes:
- SEBI and RBI introduced key policy measures in April 2022, particularly affecting the NII category.
- SEBI changed the share allotment process for NIIs from pro-rata to a lottery basis and subdivided the NII category into small NII (5% quota) and big NII (10% quota).
- RBI imposed restrictions on IPO funding by NBFCs up to ₹1 crore per borrower, leading to observable changes post-implementation.
Source- Analysis of Investor Behavior in Initial Public Offerings (IPOs), Mumbai, September 2024
Top 10 IPO Listed in India this year
Conclusion
In conclusion, India’s IPO market has been a hotbed of activity, with a significant majority of recent IPOs delivering strong returns, fueling widespread excitement and high oversubscription rates. The SEBI study highlights key investor behaviours, such as the tendency to sell shares quickly for profit, especially when returns are high.
At the same time, institutional investors like Mutual Funds prefer to hold their shares longer. The study also shows how the market has evolved post-COVID, with new investors entering and regulatory changes shaping the landscape. As the frenzy continues, understanding these trends will be crucial for anyone looking to navigate the IPO scene successfully.
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