Revised IPO distribution strategy by SEBI could potentially enhance efficiency and stability, according to experts' views.
The Securities and Exchange Board of India (SEBI) has proposed changes to the initial public offering (IPO) allocation framework for large issues exceeding ₹5,000 crore. The move aims to stabilize IPO listings by boosting institutional participation and reflecting market realities of larger issue sizes and increased mutual fund inflows.
The proposed changes include trimming the retail investor quota in mega IPOs from 35% to 25%, while increasing the allocation to qualified institutional buyers (QIBs) from 50% to 60%. This shift is partly offset by increased mutual fund participation, offering retail investors an indirect way to invest in IPOs.
For retail investors, the impact involves a reduced direct allocation in large IPOs, potentially limiting their access to new issues. However, the move may also encourage more efficient capital raising for issuers, leading to better price stability and reduced volatility on listing.
Institutional investors, particularly QIBs and mutual funds, stand to benefit from the changes as their allocation increases, providing more room to invest directly in large IPOs. SEBI also proposes increasing the number and minimum allocation amounts for anchor investors, easing caps to attract large foreign portfolio investors (FPIs) and global funds, and extending lock-in periods for anchor investors to encourage longer holding and align with global practices.
The changes in the IPO allocation framework may lead to potential institutional dominance in premium IPOs. However, some industry experts expect the impact on retail investors to be limited. The move reflects the current market reality where retail investors increasingly participate through professional managers and intermediaries like mutual funds.
Narinder Wadhwa, Managing Director & CEO of SKI Capital Services, said that retail investors often prefer entering post-listing based on fundamentals rather than IPO participation for listing gains. Khushi Mistry, a research analyst at Bonanza, stated that broadening the role of long-term domestic institutions will enhance stability, make the process more efficient, and attract a wider range of investors.
The proposed changes align with the contemporary investment landscape, providing a foundation for further policy evolution. They aim to lend credibility to the issue, strengthen retail investor confidence, and contribute to overall market stability.
However, concerns have been raised about retail investors facing limited access to high-demand issues while institutions gain more influence, raising concerns about inclusivity and equitable distribution. Diviay Chadha, Partner at Singhania & Co, expressed these concerns, while Makarand Joshi, founder partner of MMJC & Associates, stated that larger issues may still provide equal or better allotment chances for retail investors.
The proposed changes are expected to have a more nuanced impact than just diluting direct retail participation. They could enhance price stability, improve discovery, allow greater institutional participation, and lead to better due diligence, reduced volatility on listing, and more efficient capital raising for issuers.
SEBI has invited public comments on the proposed changes till August 21, 2025. The changes, if implemented, could reshape the IPO landscape in India, favouring institutional investors while potentially affecting the direct participation of retail investors.
- The Securities and Exchange Board of India (SEBI) wishes to stabilize IPO listings by altering the initial public offering (IPO) allocation framework for issues exceeding ₹5,000 crore.
- One of the proposed changes includes reducing the retail investor quota in mega IPOs from 35% to 25%, while increasing the allocation to qualified institutional buyers (QIBs) from 50% to 60%.
- The changes may lead to potential institutional dominance in premium IPOs, but could also encourage more efficient capital raising for issuers.
- For retail investors, the impact involves a reduced direct allocation in large IPOs, potentially limiting their access to new issues.
- Institutional investors, particularly QIBs and mutual funds, stand to benefit from the changes as their allocation increases.
- The role of long-term domestic institutions, such as mutual funds, is anticipated to enhance stability and make the process more efficient.
- SEBI invites public comments on the proposed changes till August 21, 2025, and the implementations could reshape the IPO landscape in India, favouring institutional investors while potentially affecting the direct participation of retail investors.
