MUMBAI: Amidst the frenetic activity in the primary market — with July setting a record of sorts both in terms of the number of IPOs as well as the money mopped up — the markets watchdog Sebi has proposed a major overhaul of the norms for large IPOs. This is likely to lead to an increase in allocation for institutional investors, while reducing the share reserved for retail investors to address the flagging retail participation in large issues.
In a consultation paper released late Thursday night, the Securities and Exchange Board (Sebi) has proposed a flexible retail allocation framework for initial public offerings (IPOs) that are bigger than Rs 5,000 crore, allowing the retail quota to drop to 25% from 35% in a staggered manner, while boosting the qualified institutional buyer quota from 50% to 60% to ensure demand stability.
The main objective of cutting the retail quota in large issues to 25% is to boost listing stability, the regulator said, adding the reduction in the minimum retail allocation for mega listings above Rs 5,000 crore will be graded.
Sebi has sought public comments till August 21 on rebalancing investor mix to reflect shifting market realities.
The proposals, which could reshape the allocation structure of equities to retail investors, aim at aligning the IPO structures with market realities—the surging mutual fund flows and growing average issue sizes—while safeguarding long-term investor confidence.
“Given the present allocation methodology and experience in recent issues, these large retail portions require lakhs of retail applicants for the category to be fully subscribed,” says the consultation paper.
Examples from the consultation paper include Hyundai Motor’s Rs 27,859 crore issue, where retail portion was subscribed at just 0.4x; Hexaware Technologies’ Rs 8,750 crore (retail subscription 0.1x); and Afcons Infra’s Rs 5,430 crore IPO that saw retail subscription at 0.9x.
In contrast, mutual fund participation via SIPs and as QIBs has been surging. Retail investment via SIPs hit monthly record of Rs 26,688 crore in June while the mutual fund industry’s assets under management crossed Rs 74.5 trillion, signalling strong and steady inflows from retail investors through funds.
For a Rs 5,000-crore IPO, the minimum retail application size requires about 7–8 lakh bidders. For bigger issues, say, a Rs 10,000-crore offer, the number rises to at least 1.75 million applications, the paper says.
Despite robust inflows into mutual funds, where retail investment via SIPs hit a monthly record of Rs 26,688 crore in May, direct retail participation in IPOs has plateaued, despite the market seeing dozens of issues in a month.
For instance, this July set a record both in terms of number of issues as well as in the amount collected at over 45, of which 13 are mainboard issues worth Rs 38,000 crore and the rest SME issues, helping the country maintains the distinction being the second-largest IPO destination globally so far in 2025, following the US which has raised $6.7 billion.