IPO investors selling post listing

Initial public offers are selling like hot cakes even during the recent turbulent times on the bourses, but it has become more of a short-term opportunity with close to 60 per cent of the companies seeing a sell-off by a large number of small investors within days of listing.

An analysis of all the IPOs that hit the bourses in the past one year shows that 43 companies witnessed a decline in the number of shares held by small individual shareholders. This is based on the pre-listing and the mandatory quarter-end shareholding data disclosed by the companies.

As many as 76 companies have come out with their IPOs since August last year and both pre-listing as well as quarter-end shareholding pattern is available for 71 of them.

According to market observers, short-term investors in IPOs tend to sell their shares mostly on the first day -- which is evident from the huge trading volumes recorded by the stocks on their first day on the bourses. Besides, they do not want to take a risk on whether the momentum generated by the IPO would continue, said a broker.

Brokerage firm Motilal Oswal Financial Services Ltd's chairman and managing director Motilal Oswal told PTI: "It is true that a number of investors have started behaving like passengers when it comes to investing in IPOs. They tend to put money in a public issue, book profit from the listing gains and then invest in another IPO," he said.

Incidentally, Motilal Oswal's IPO closed on August 23 with more than 27 times of over-subscription. It is the strong appetite for IPOs that helped the IPO sail through even during the turbulent phase on the bourses, said a broker.

According to data with stock exchanges, companies who saw decline in their small individual shareholdings include Development Credit Bank, Global Broadcast Network, Idea Cellular, Indian Bank, Lanco Infratech, Raj Television, Power Finance Corp, Sobha Developers and Tech Mahindra.

Besides, Info Edge India, which owns job portal Naukri.com, Hanung Toys, fashion goods firm House of Pearl, Mudra Lifestyle, Nissan Copper, AMD Metplast, Atlanta, Accel Frontline and Action Construction also recorded a decline.

Small retail investors are defined as those who hold shares worth up to Rs one lakh in a company. The retail portion of Motilal Oswal IPO was subscribed more than four times, while that of Indowind Energy Ltd also closed with over-subscription.

The post-listing selling of shares by small investors comes amid an average gain of about 23 per cent recorded on their first day of listing, followed by further upward rally in the following days when those investors rush to buy the shares who had been left out in the primary market.

Investors have benefited from the robust first-day gains over the issue price. Based on the individual first-day gains recorded by each stocks, an investor would have netted a gain of Rs 3.8 lakh on a portfolio of 100 shares of all the firms that came out with IPOs in the past one year.

Most of the companies that have seen sell-off by small shareholders recorded significant first-day gains over their issue prices, while some of those who ended with a discount also recorded sale of shares by them.

Shares of Fiem Industries, House of Pearl, Raj TV and Gremach Infra closed below their respective issue prices in the debut trade, but small investors seem to have pared their exposure in the following days after booking some gains.

Vishal Retail is the only company that has seen no change in the net holding of small shareholders, although the stock had recorded a gain of 178 per cent in its debut trade.

A total of 28 companies -- including Akruti Nirman, Cairn India, FirstSource Solutions, GMR Infra, Mindtree Consultancy, Pyramid Saimira, Fortis Healthcare and ICRA -- saw their base of small shareholders increasing after listing