Banks selling IPO shares within a week, experts call for RBI explanation

Mumbai (Maharashtra) [India], September 4 : Amid a surge in number and demand of Initial Public offerings (IPOs) in the Indian stock market, a recent SEBI report has revealed some interesting behaviour of investors in the IPO market.
The report says that about 80 per cent of the banks sell IPO shares within a week of listing. This swift exit strategy starkly contrasts with the approach of mutual funds, which have the highest retention rate for IPO shares.
"Mutual Funds tend to invest for longer period in IPO shares, whereas Banks tend to sell swiftly. Mutual Funds sold about 3.3 per cent of allotted value within a week, as compared to 79.8 per cent for Banks" said the SEBI report.
Market experts have raised concerns and questioned bank's rationale to subscribe IPOs when they have to exit it within a week.
Ajay Bagga, Banking and stock market expert asks, "Why are Banks investing in IPOs? SEBI report mentions banks sell 79 per cent 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 further told ANI that "The bigger question is why are Banks investing in IPOs and then selling 79 per cent of allotted shares within a week. Banks have a fiduciary duty based on deposit holders Trust. To invest in such ultra-short term assets, driven by the hope of listing gains is not a mandate for banks".
The SEBI report further adds that a similar trend is seen among other categories of investors in the IPO market. It notes that approximately 54 per cent 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 per cent of the shares allotted to them being sold within a week.
This suggests a significant portion of the market participants are primarily focused on short-term gains, cashing in on the immediate post-listing surge rather than holding onto their shares for potential long-term gain.
SEBI report highlights that between April 2021 and December 2023, there were 144 IPOs listed on the Indian stock markets, of which 75 per cent (108 IPOs) delivered positive returns on the listing day. Remarkably, 26 of these IPOs provided more than 50 per cent returns on their first day of trading.
Despite some IPOs underperforming after listing, the enthusiasm for new IPOs remains strong. The report says 92 IPOs were oversubscribed by more than 10 times, indicating robust demand, while only 2 IPOs faced undersubscription.