Over 50% of IPO investors sell shares within week: SEBI
What's the story
The Securities and Exchange Board of India (SEBI) has disclosed that more than half of the initial public offering (IPO) investors, sold their shares within a week of listing. This trend was observed during the period from April 2021 to December 2023. The study further revealed that this figure escalated to 70% by value, within one year after listing.
Investor behavior
SEBI identifies 'flipping' trend among individual investors
SEBI's study, which analyzed investor behavior across 144 main board public issues, identified a significant trend of 'flipping' among individual investors. This term refers to the practice of selling assets that have appreciated in value while retaining those that have depreciated. The study found this pattern was particularly prevalent when IPO returns exceeded 20%, with investors offloading 67.6% of shares by value within a week.
Market response
IPO investors hold back during negative returns
The study also highlighted a contrasting behavior when IPO returns were negative. In such scenarios, only 23.3% of shares by value were sold within the same one-week period. This suggests that investors are more likely to hold onto their investments during periods of market downturns or unfavorable financial performance by the company issuing the IPO.
Account growth
Demat account surge post-COVID-19 influences IPO applications
SEBI's study also pointed out a surge in demat accounts post-COVID-19, which significantly influenced IPO applications. Nearly half of these newly created accounts applied for IPOs between April 2021 and December 2023. This increase in demat accounts and subsequent rise in IPO applications indicates a growing interest among individuals to invest in the stock market during the post-pandemic period.
Regulatory impact
RBI's IPO financing guidelines impact over-subscription rates
The study also noted the impact of the Reserve Bank of India's (RBI) guidelines on IPO financing by non-banking financial companies (NBFCs). Following these guidelines, SEBI observed a significant reduction in over-subscription rates in the non-institutional investor (NII) category. The rate dropped from 38 times to 17 times, indicating a substantial change in investor behavior due to regulatory measures.