A recent study reveals that anchor investors in India are exiting IPOs much sooner than intended, prompting calls for stricter lock-in rules to restore confidence and improve the signalling role of anchor investors.
India’s anchor investor system was meant to do more than grease the wheels of an initial public offering. It was supposed to give retail buyers a signal of confidence from sophisticated investors with the time and skill to assess an unlisted business properly. Yet a Securities and Exchange Board of India study of 242 mainboard IPOs suggests the mechanism is doing far less anchoring than its name implies, with many investors leaving soon after lock-in periods end and roughly half the total allotment value sold within a year. Smaller issues appear to be especially vulnerable, with exits rising more sharply where offerings are less substantial.
The study shows a clear split in behaviour across investor groups. Foreign portfolio investors were the quickest to head for the exit, selling about 60% of their allotments over the period examined, while mutual funds proved far more patient, disposing of just 38% by the end of a year. Company-related investors and alternative investment funds were also relatively quick sellers. In the shortest term, the pressure was concentrated in smaller IPOs, where around a third of the allotment value had already been sold after three months, according to the Business Standard report on the study.
The pattern matters because the current framework is unusually permissive. Under existing SEBI rules, only half of an anchor investor’s shares are locked in for one month from allotment, while the balance is tied up for three months. That may prevent immediate dumping, but it does little to guarantee the kind of patient capital the system was built to encourage. The regulator’s findings also raise the possibility that some anchors are using the arrangement more as a short-term trade than a long-term endorsement, particularly in smaller offerings where selling pressure appears stronger.
If SEBI wants anchors to serve as a genuine quality check for new listings, the lesson from its own research is that the rules may need tightening. Extending the lock-in to a full year for all allotted shares and lifting the minimum anchor commitment from ₹10 crore to ₹50 crore, as the editorial argues, would help ensure that only investors with real conviction participate. That would not remove the risks of IPO investing, but it could improve the signalling value of anchors and reduce the scope for early exits that undermine confidence in the issue.
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