Revised IPO structure for significant offerings suggested by SEBI
SEBI Proposes Changes to Large IPO Allocations
The Securities and Exchange Board of India (SEBI) has announced proposed changes to the structure of large initial public offerings (IPOs), aiming to improve listing stability and reflect market realities.
In a significant move, the retail investor allocation in large IPOs (those above ₹5,000 crore) may be reduced from the current 35% to 25%. Simultaneously, the allocation for institutional buyers may be increased from 50% to 60%, in a graded manner.
To offset the reduction in retail allocation, SEBI plans to increase the reservation for domestic mutual funds within the non-anchor QIB category from 5% to 15%. This move is expected to boost institutional presence and potentially stabilize post-listing price performance.
Moreover, SEBI proposes expanding the anchor investor framework by increasing the number of permissible anchor investor allottees for large allocations (e.g., 5 to 15 investors for up to ₹250 crore) and including life insurers and pension funds alongside mutual funds in the reserved anchor category. This change would raise their collective reservation from 30% to 40% of the anchor book.
The impact on retail investors could be mixed. While the reduced quota acknowledges that retail participation in mega IPOs has been limited and difficult to scale due to the large subscription sizes required, it could potentially limit their access. However, the proposed changes aim to foster stronger institutional backing that may lead to more stable listings benefiting all investors over time.
SEBI has invited public comments on these proposals until August 21, 2025. The proposed changes include increasing the allocation limit for institutional buyers and reducing the share reserved for retail investors. Additionally, SEBI suggests including insurance companies and pension funds in the reserved category of the anchor investor portion.
It's worth noting that the average IPO sizes in India have been increasing, but direct retail participation has remained flat over the past three years. This trend is a key factor driving the proposed changes.
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Lastly, SEBI suggests allowing pension funds and provident funds to act as strategic investors in REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts), a move that could potentially boost these sectors' growth.
- The proposed changes by SEBI for large IPOs could lead to an increased allocation for institutional buyers such as mutual funds and insurance companies, thereby pushing for more investing in the business sector.
- In the proposals announced by SEBI, there is a suggested change to allow pension funds and provident funds to invest as strategic investors in REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts), which might foster growth in these sectors.
