We will discuss whether you should invest in an Initial Public Offer (IPO) for the long term. What does SEBI’s data show?

The story

SEBI issued a press release titled ‘Analysis of Investor Behavior in Initial Public Offerings (IPOs)’. The study encompasses data from 144 IPOs listed between April 2021 and December 2023.

The key highlights are

  • Retail investors sold 42.7% of their shares within a week of listing. This number increased to 61.9% when IPO returns exceeded 20%.
  • Non-institutional investors (like High Net-worth Individuals and corporates) sold 63.3% of their shares within the first week, jumping to 79.1% when returns were above 20%.
  • Institutional investors (excluding Anchor investors) sold even faster, offloading 65.4% of their shares within one week

Anchor investors

Anchor investors are institutional investors, such as mutual funds, insurance companies, or pension funds, invited to invest in an IPO before it opens to the public.

Anchor investors also have a lock-in period of 30 days, during which they cannot sell their shares.

Long story short, be it individuals or institutions, most of the investors get away with a large proportion of the IPO shares they get.

Why though?

Reasons investors sell IPO allotment

  • High Valuation:
    Most IPOs come during market uptrends, as companies can secure better valuations. Investors might end up holding a company bought at an unfavorable valuation.
  • Tempting Listing Gains:
    Most investors apply for IPOs seeking quick listing gains. Getting double-digit returns within a few days seems more than enough.

To conclude

IPO investing for long-term gains can be tricky, as most investors–retailers, HNIs & institutions – focus on short-term profits.

Holding on for the long haul requires careful analysis, which is a task in itself, and even then, valuations may not hold up, so exit seems more appealing.