IPO market in India: Most investors chase listing lottery, sell shares within a week, says Sebi

The Indian primary market was in a lull for three long years from financial year 2019 to 2021. However, the spate of muted fundraising activity was finally shattered in FY2022, a historic year where fund mobilisation through mainboard Initial Public Offerings (IPOs) reached new highs.

In that fiscal alone, there were at least 50 IPOs that together raised over Rs 1,10,000 crore.

In light of the increased activity in the primary market in India, the Securities and Exchange Board of India (Sebi) undertook a study to understand the behaviour of Indian investors towards IPOs.

An interesting (and perhaps concerning) revelation was that the investing community in India largely views IPOs as short-term opportunities rather than long-term investments.

The study by the markets watchdog pointed to “flipping behaviour,” where a majority of investors sell their shares shortly after listing, driven by the pursuit of quick gains.

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Selling trends among NIIs, retail investors

According to Sebi, 54 per cent of IPO shares, excluding those held by anchor investors, were sold within a week of listing.

This rapid exit strategy was most pronounced among Non-Institutional Investors (NIIs), which include High Net-Worth Individuals (HNIs) and corporate entities, who offloaded 63.3 per cent of their allotted shares within the first week.

Retail investors also exhibited a strong tendency to sell quickly, with 42.7 per cent of the shares allotted to them being sold within a week.

Individual investors, on average, sold 50.2 per cent of their allotted shares during the same period, indicating a widespread preference for short-term profits over long-term holding.

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The study further analysed investor behavior in relation to market performance, revealing that individual investors sold 67.6 per cent of their shares by value within a week when the returns exceeded 20 per cent. In contrast, only 23.3 per cent of shares were sold when returns were negative. This is a demonstration of the “disposition effect”— a tendency to sell winning assets prematurely while holding on to those that are underperforming.

Banks are swift sellers, too

It’s not just individuals, though. Banks, too, tended to sell quickly to benefit from listing gains of IPOs. They were found to sell 79.8 per cent of their allotted shares within a week.

Mutual funds defied the trends with a more patient approach. These investment vehicles sold only 3.3 per cent of their shares within a week of the listing.