A recent study by the Securities and Exchange Board of India (Sebi) has revealed that 54 per cent of initial public offering (IPO) shares allotted to investors (excluding anchor investors) in mainboard IPOs are sold within a week. The study, which analysed data from 144 IPOs listed between April 2021 and December 2023, came amidst the increasing participation of retail investors and oversubscription in recent IPOs.

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Key Findings

The study showed that individual investors sold 50.2 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. This trend was more pronounced in IPO shares with listing gains than those listed at a loss.

On the other hand, non-institutional investors (NIIs) sold 63.3 per cent of shares by value, while retail investors sold 42.7 per cent of shares by value within a month. When IPO returns exceeded 20 per cent, individual investors sold 67.6 per cent of the shares by value within a week. In contrast, only 23.3 per cent of shares by value were sold when returns were negative.

Of the 144 IPOs listed from April 2021 to December 2023, 75 per cent of IPOs (108) delivered positive returns. As many as 26 IPOs delivered more than 50 per cent returns on listing day.

Out of all the shares sold (in value terms) on the listing day, individuals sold 54.3 per cent, followed by corporates (19.9 per cent), and banks contributed 15.2 per cent to the gross selling.

One particularly interesting finding was that nearly half of the demat accounts that applied for IPOs between April 2021 and December 2023 were opened during the post-Covid-19 period (i.e., 2021-2023).

The study found that policy interventions by Sebi regarding NII share allotment process and the Reserve Bank of India’s (RBI) guidelines on IPO financing by non-banking financial companies (NBFCs) in 2022 made significant impact in the IPO subscription trend. For instance, oversubscription under the NII category halved from 38 times to 17 times. The applications from “Big Ticket NII Investors” applying for more than Rs 1 crore in IPOs dropped from around 626 per IPO to about 20 per IPO after the Sebi intervention. Also, big ticket NII investors reduced the selling of shares within a week of listing from about 70 per cent to 25 per cent.