SEBI Study Reveals Investor Behavior in IPOs: Selling Trends and Policy Impacts
A study conducted by the Securities and Exchange Board of India (SEBI) found a strong disposition effect among investors. This means that investors showed a greater tendency to sell shares from initial public offerings (IPOs) that recorded positive listing gains compared to those that listed at a loss.
What is the Disposition Effect?
The disposition effect refers to the tendency of investors to sell assets that have increased in value while holding onto assets that have decreased in value.
Study Details
Given the increasing participation of retail investors and the heightened oversubscription in recent IPOs, SEBI undertook an in-depth study to analyze investor behavior in IPOs. The study covered data from 144 IPOs listed between April 2021 and December 2023.
Key Findings
- Investors displayed ‘flipping’ behavior, selling 50% of shares within a week of listing and 70% within a year.
- When IPO returns exceeded 20%, investors sold 67.6% of shares within a week. In contrast, only 23.3% of shares were sold when returns were negative.
- Nearly half of the demat accounts applying for IPOs were opened during the post-Covid period (2021-2023).
Impact of Policy Changes
Following SEBI’s policy interventions regarding the Non-Institutional Investor (NII) share allotment process and the Reserve Bank of India’s (RBI) guidelines on IPO financing by NBFCs in April 2022, the study found a significant reduction in oversubscription within the NII category.
| Period | Oversubscription | Big Ticket NII Applications |
|---|---|---|
| Pre-Policy (April 2021-March 2022) | 38 times | 626 per IPO |
| Post-Policy (April 2022-December 2023) | 17 times | 20 per IPO |
Resurgence in IPO Market
India’s IPO market witnessed a resurgence in 2024, with a total of 272 companies going public, compared to 164 during the previous fiscal year. An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public for the first time.
Doubts Revealed
SEBI -: SEBI stands for the Securities and Exchange Board of India. It is a government organization that regulates the stock market in India to protect investors and ensure fair trading.
IPO -: IPO stands for Initial Public Offering. It is when a company sells its shares to the public for the first time to raise money.
shares -: Shares are units of ownership in a company. When you buy shares, you own a small part of that company.
positive gains -: Positive gains mean making a profit. If you buy something for Rs. 100 and sell it for Rs. 120, you have a positive gain of Rs. 20.
oversubscription -: Oversubscription happens when more people want to buy shares in an IPO than the number of shares available. This means the demand is higher than the supply.
large investors -: Large investors are people or organizations that invest a lot of money in the stock market. They can influence the market because of the large amounts they invest.
resurgence -: Resurgence means coming back or becoming active again. In this context, it means the IPO market became busy again with many companies going public.
