Majority of IPO shares are sold in 7 days, 70% within a year: Sebi study

Sebi study shows most of IPO applicants chase quick gains

A majority of investors who receive an allotment of shares in an initial public offering (IPO) sell their shares within a week, while 70 per cent sell within a year. A study conducted by the Securities and Exchange Board of India (Sebi) on 144 IPOs listed between April 2021 and December 2023 shows that most individuals applying for IPOs aim for quick gains.

“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,” Sebi said in a press release. The greater the post-listing gains, the higher the number of investors looking to sell.

“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,” the regulator observed.

The study also revealed a drop in oversubscription levels in the high networth individual (HNI) category following the Rs 1 crore cap on IPO financing by non-banking financial companies imposed by the Reserve Bank of India (RBI) in April 2022.

The average number of HNI applications for more than Rs 1 crore in IPOs decreased from roughly 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), according to the Sebi study.

Of the 144 IPOs that raised Rs 2.13 trillion, 75 per cent (108) delivered positive returns, with 26 IPOs yielding more than 50 per cent in listing-day returns. The regulator examined the investment patterns of over 90 million unique IPO investors.

The study also revealed the geographical distribution of IPO investors.

About 70 per cent of IPO applicants come from just four states: Gujarat, Maharashtra, Rajasthan, and Uttar Pradesh.

“Retail investors from Gujarat received 39.3 per cent of the allotment in the retail category, followed by Maharashtra (13.5 per cent) and Rajasthan (10.5 per cent). In the HNI category, the allotment for Gujarat-based investors was even higher at 42.3 per cent, followed by Maharashtra (20.4 per cent) and Rajasthan (15.5 per cent),” it pointed out.

The study showed that nearly 48 per cent of the dematerialised accounts receiving allotments for the 144 IPOs were opened between 2021 and 2023.

In the qualified institutional buyer segment, 65.4 per cent of the shares allotted in the main book were sold within a week, and 87.8 per cent were sold within a year of listing. The holding period across investor categories was shorter for IPOs valued at less than Rs 1,000 crore.