SEBI Study Highlights Investor Behavior in IPOs, Reveals Key Trends

A SEBI study discovered a strong disposition effect among investors, with a tendency to sell shares with positive listing gains. The study analyzed 144 IPOs from April 2021 to December 2023, revealing 'flipping' behavior and significant impacts of SEBI and RBI policy interventions on IPO oversubscription rates.

A recent study by the Securities and Exchange Board of India (SEBI) has revealed a pronounced disposition effect among investors, showing a stronger inclination to sell shares from initial public offerings (IPOs) that posted positive listing gains, as opposed to those that listed at a loss. This disposition effect is characterized by investors preferring to sell their appreciated assets while holding onto depreciating ones.

With increasing retail investor participation and the rising oversubscription of recent IPOs, SEBI conducted a comprehensive analysis of investor behavior in 144 IPOs listed between April 2021 and December 2023. The findings indicated notable 'flipping' activities among individual investors, who sold 50% of their allotted shares by value within a week of listing and 70% within a year. The study also highlighted that higher returns on shares incentivized quicker selling.

Specifically, individual investors sold 67.6% of their shares by value within a week when IPO returns exceeded 20%. Conversely, only 23.3% of shares were sold when returns were negative. A significant proportion of demat accounts applying for IPOs during this period were opened post-COVID. Furthermore, SEBI's policy interventions on the Non-Institutional Investor (NII) allotment process and RBI's IPO financing guidelines led to a halving of oversubscription rates from 38 times to 17 times, and a reduction in applications from 'Big Ticket NII Investors.' The number of NII applications exceeding Rs1 crore per IPO dropped from about 626 in the pre-policy period to around 20 post-policy. In 2024, India's IPO market saw a revival with 272 companies going public, up from 164 in the prior fiscal year.

(With inputs from agencies.)