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.
Recent deals show that while retail demand remains high for select big-ticket listings such as LIC and Bajaj Housing Finance, many large IPOs see undersubscription from both retail and non-institutional investor categories.
Currently, for most big issues, at least 35% of shares have to be kept aside for retail. Sebi has now proposed to keep 35% of the first Rs 5,000 crore worth shares for small investors. For any amount above that, only 10% needs to be set aside for them. However, at a minimum, small investors will always get at least 25% of the total shares, no matter how big the IPO is.
If the shares for small investors are not all taken up, the leftover shares will go to institutions like mutual funds, insurers and banks, making sure all the shares can get sold smoothly.
To offset the reduced retail allocation, the paper proposes to ramp up the reservation for domestic mutual funds in the non-anchor QIB category from 5% to 15%. According to Sebi, this will ensure continued high level of effective retail participation, combining direct and mutual fund investment routes.
Sebi has also noted that while average IPO sizes have been increasing, direct retail participation has remained flat over the past three years. For large public issues, retail subscription levels have been particularly muted, the regulator said.
The regulator has also proposed to increase the number of permissible anchor investor allottees for allocations above Rs 250 crore, so as to ease participation for large foreign portfolio investors managing multiple funds.
The regulator has also sought feedback on changes on anchor investor norms, institutional lock-in periods, and transferring parts of retail quota to other segments.
The plan to extend the lock-in periods for anchor investors beyond existing 30-day (50%) and 90-day (50%) requirements was considered to encourage longer holding, curb speculative exits and align with global best practices.
On increasing the portion for institutional investors, the paper notes that “FPIs are active participants in IPOs. However, the current cap on the discretionary/anchor portion poses challenges in attracting large FPIs and global investment funds, who typically have diverse investment horizons and prefer large, assured allocations.”.
During the past five years, the average mainboard IPO size has been above Rs 3,000 crore, with even smaller issues exceeding Rs 300–500 crore. Anchor allocation of up to Rs 10 crore to a maximum of two investors has become virtually redundant.
“To address this issue, it is proposed to increase the number of permissible anchor investor allocations of above Rs 250 crore. A minimum of 5 and a maximum of 15 investors shall be allowed for allocations of up to Rs 250 crore. For every additional Rs 250 crore, an additional 15 investors, instead of 10, may be permitted, subject to a minimum allotment of Rs 5 crore per investor,” Sebi said.