Retail investors make quick exit, and buck, from IPO stocks

BL Research Bureau:

It is not just high net worth investors who “flip” their shares on listing, after scrambling to get allotments in Initial Public Offers (IPOs). Retail investors do so too. Going by the shareholding patterns of the 63 IPOs that came out in 2010, the number of retail investors in these IPOs halved within the first three months of listing. About 80 per cent of these companies saw retail shareholders reduce their stakes as a class, soon after their market debut.

The trend was far more pronounced in IPOs that delivered gains on listing. For this analysis, we considered the shareholding patterns released when the IPO was listed and the quarter that followed immediately.
Gaining from listing

The IPOs of 2010 saw half their retail investors exiting soon after listing. The number of shares held by retail investors as a category too dropped by 33 per cent.

For instance, VA Tech Wabag saw the number of retail shareholders fall to just 28,430, from 1.4 lakh just after listing. The retail stake in the stock dropped to 7 per cent at the end of the December 2010 quarter from 15 per cent at the time it was listed in early October.

More than half the offers in 2010 managed quick gains, closing listing day with gains of over 20 per cent. Retail investors were particularly active in trimming their stakes in such stocks. Aster Silicates, for example, made an impressive market debut with a 69 per cent gain at the close of listing day. The number of retail shares in the company fell by 10 lakh, while the number of shareholders declined by 3,765.

Similarly, in Ravi Kumar Distilleries, the number of retail shares dropped a massive 63 lakh, having listed in late December with a 25 per cent gain. About 4,000 retail shareholders exited the company between its listing and the end of the December quarter.

While they did make a quick exit from offers that delivered gains on listing, retail investors showed greater reluctance to sell IPO stocks whose prices fell on market debut. Considering the shareholding at the end of the March 2011 quarter, retail investors held on to stakes even as prices continued to fall.

The number of retail shares in Pradip Overseas, for instance, rose from 65 lakh shares to 74.1 lakh shares between the June 2010 and March 2011 quarters, even as the stock languished 24 per cent below its issue price.