SEBI Report Unveils Investors' Swift Exit in IPO Market

A SEBI report discloses that a significant number of banks and investors sell their IPO shares within a week of listing, contrasting with mutual funds' long-term retention. The report has sparked concerns among market experts regarding banks' strategies and fiduciary responsibilities.

In a significant analysis of the Indian IPO market, a recent report by the Securities and Exchange Board of India (SEBI) has highlighted a swift exit strategy employed by a considerable number of investors. The report reveals that roughly 80 percent of banks sell their IPO shares within a week of listing. This behavior starkly contrasts with mutual funds, which retain the highest percentage of IPO shares.

According to the SEBI report, 'Mutual Funds tend to invest for longer periods in IPO shares, whereas Banks tend to sell swiftly. Mutual Funds sold about 3.3 percent of allotted value within a week, as compared to 79.8 percent for Banks.' Market experts have raised significant concerns and questioned the rationale behind banks subscribing to IPOs only to exit them quickly.

Ajay Bagga, a banking and stock market expert, highlighted the issue, 'Why are Banks investing in IPOs? SEBI report mentions banks sell 79 percent of their IPO allotments within a week. Why are Banks playing in the Casino of Listing Gains? Who are these Banks? Has RBI allowed this?' He added that 'The bigger question is why banks are investing in IPOs and then selling 79 percent of allotted shares within a week. Banks have a fiduciary duty based on deposit holders' trust, and investing in ultra-short-term assets driven by listing gains is not their mandate.'

The SEBI report further adds that a similar trend is seen among other categories of investors in the IPO market. Approximately 54 percent of IPO shares, in terms of value, allotted to investors (excluding anchor investors) were sold within a week of listing. Individual or retail investors also displayed a similar pattern, with about 50.2 percent of the shares allotted to them being sold within a week.

This indicates that a significant portion of market participants are focused on short-term gains, aiming to capitalize on immediate post-listing surges rather than holding shares for potential long-term gains. The report highlights that between April 2021 and December 2023, 144 IPOs were listed on Indian stock markets, with 75 percent delivering positive returns on the listing day. Notably, 26 of these IPOs provided gains exceeding 50 percent on their first day of trading.

Despite some IPOs underperforming after listing, the enthusiasm for new IPOs remains robust. The report notes that 92 IPOs were oversubscribed by more than ten times, signaling strong demand, while only two IPOs faced undersubscription.

(With inputs from agencies.)