SEBI Study Reveals Investor Behavior in IPOs: 54% of IPO Shares Sold Within a Week

A recent study conducted by the market regulator Securities and Exchange Board of India (SEBI) has shed light on the behaviour of retail investors in Initial Public Offerings (IPOs) in India. The study, which analysed data from 144 IPOs listed between April 2021 and December 2023, found that individual investors tend to be short-term oriented and are influenced by IPO performance.

One of the key findings of the study was the prevalence of “flipping” behaviour among individual investors. These investors sold a significant portion of their allotted shares within a short period after listing, with 50% sold within a week and 70% sold within a year. This suggests that many investors are primarily focused on short-term gains.

The study also identified a strong disposition effect, meaning investors are more likely to sell IPO shares that have performed well than those that have underperformed. This behaviour is often attributed to the psychological desire to lock in profits and avoid losses.

The performance of IPOs also significantly influenced the selling behaviour of individual investors. When IPO returns exceeded 20%, investors sold a substantial portion of their shares within a week. Conversely, when returns were negative, selling activity was significantly lower.

The study also highlighted the surge in demat accounts opened during the post-COVID period, which coincided with increased interest in the stock market. This contributed to the heightened participation of retail investors in IPOs.

SEBI’s policy interventions in April 2022, aimed at reducing oversubscription by non-institutional investors (NIIs) and limiting the involvement of large NII investors, had a noticeable impact on the IPO landscape. Oversubscription rates under the NII category were significantly reduced, and the number of large NII applications declined dramatically. However, despite these changes, the total funds raised during the pre-and post-policy periods remained comparable.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.