Investor interest in IPOs in India is rapidly increasing, making them an attractive opportunity. On September 2, 2024, SEBI released a report stating that 54% of IPO shares allocated (excluding anchor investors) are being sold within a week. The report covers data from 144 IPOs listed between April 2021 and December 2023.
Let’s take a closer look at the key facts and figures from this report.
Changing Investor Behaviour
According to SEBI’s report, the trend of investors selling their IPO shares soon after allocation is growing among small and medium investors. Individual investors sold 50% of their allocated shares within a week, and 70% were sold within a year.
The report also highlights the ‘disposition effect’, which shows that when shares exceeded by 20% after listing, individual investors sold 67.6% of their shares within a week. In contrast, when returns were negative, only 23.3% of the shares were sold.
This trend suggests that investors are eager to secure quick gains on positive returns while holding onto shares that have declined in value for longer.
Exit Patterns of QIB, NII, and Retail Investors
The study found that 42.7% of shares allocated to retail investors were sold within a week. Non-Institutional Investors (NIIs), which include High Net-Worth Individuals (HNIs) and corporates, sold 63.3% of their shares during the first week of listing.
On the other hand, Qualified Institutional Buyers (QIBs) sold only 19.5% of their shares in the first week, primarily due to the influence of anchor investors.
This graph illustrates how different types of investors sold their shares within a week.
The data shows that retail and NII investors are quick to sell shares to lock in profits, while institutional investors prefer to hold their investments longer.
Oversubscription vs Listing Gains
The report analysed 144 IPOs listed between April 2021 and December 2023. Of these, 17 IPOs were oversubscribed by more than 100 times, providing an average return of 82% on listing day. However, 2 IPOs were under-subscribed and managed to provide only a modest 2% return on listing day. These numbers indicate that oversubscription has a direct impact on listing day returns.
This chart illustrates the link between IPO oversubscription and listing gains.
Decline in Large Investor Participation
Significant changes have been observed since SEBI’s policy changes to NII share allocation in April 2022 and RBI’s guidelines on IPO financing through NBFCs. The oversubscription rate in the NII category dropped from 38 times to 17 times
This graph shows the oversubscription across different investor categories from April 2021 to December 2023.
The average number of IPO applications from ‘Big Ticket NII Investors’ (those investing over Rs 1 crore) fell from approximately 626 per IPO during the pre-period (April 2021 – March 2022) to just 20 per IPO in the post-period (April 2022 – December 2023).
Conclusion
The report reveals that most IPO shares are sold by retail and NII investors within a week, particularly when strong listing gains are realised. This trend reflects investors’ desire for short-term profits. At the same time, policy changes have limited large investor participation, but the interest of small and medium investors in IPOs continues to grow steadily.
That’s it for today. We hope you’ve found this article informative. Remember to spread the word among your friends. Until we meet again, stay curious!
*This article is for informational purposes only. This is not investment advice.
*Disclaimer: Teji Mandi Disclaimer
