Nithin Kamath in a post in X highlighted a striking observation from SEBI’s study on IPO participation: Gujarat, with just 9% of India’s total investor base, accounts for a staggering 40% of IPO activity in both retail and high-net-worth individual (HNI) categories.
“IPO flipping (trading) in the Gujju genes.” he wrote. The sharp contrast reveals a distinct pattern among Gujarat’s investors, where flipping IPO shares—selling them shortly after listing—appears to be a well-honed strategy.
SEBI’s study offers a deep dive into investor behavior in the IPO market. A significant 54% of IPO shares, excluding those allocated to anchor investors, were flipped within a week of listing.
Breaking it down further, individual investors sold 50.2% of their allotted shares, while high-net-worth investors offloaded 63.3% of their shares by value. Retail investors followed suit, selling 42.7% of their holdings.
Interestingly, mutual funds showed a starkly different approach, holding onto their shares longer and selling only about 3.3% within a week. Banks, on the other hand, were quick to exit, selling 79.8% of their shares within the same period.
This behavior reflects the broader “disposition effect,” where investors are more inclined to sell shares that show positive listing gains, rather than holding onto those with initial losses.
Gujarat’s prominence in IPO participation is further emphasized by its retail investor base, which makes up 39.3% of this segment, far outstripping other states like Maharashtra (13.5%) and Rajasthan (10.5%). The post-COVID era saw a surge in new Demat accounts, with nearly half of all accounts applying for IPOs being opened between April 2021 and December 2023.
Policy changes introduced in April 2022, including adjustments in share allotment methods and restrictions on IPO funding by NBFCs, significantly impacted the market. These measures led to a reduction in oversubscription rates and a noticeable decline in applications from big-ticket NII investors. The value of shares sold by these investors within a week also dropped sharply, reflecting a shift in market dynamics.