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.
Surge in number of demat accounts
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.