Context:
The Securities and Exchange Board of India (SEBI) has released a consultation paper proposing major reforms to the allocation structure of Initial Public Offerings (IPOs), particularly for large issues exceeding â‚ą5,000 crore. The move aims to better align IPO allocation with investor interest and institutional appetite.
Proposed Changes in IPO Allocation Structure
- For IPOs above â‚ą5,000 crore, SEBI proposes:
- Retail investor quota to be reduced from 35% to 25%.
- Institutional quota (Qualified Institutional Buyers – QIBs) to be increased from 50% to 60%.
- A graded approach will be applied based on IPO size.
Rationale Behind the Proposal
- SEBI noted that:
- IPO sizes have grown, but retail participation has remained flat over the last three years.
- In large IPOs, retail subscription levels have often been muted or underutilized, while institutional demand remains strong.
Anchor Investor Reforms
- SEBI proposes to increase the number of permissible anchor investor allottees for allocations exceeding â‚ą250 crore.
- This will make participation easier for large FPIs managing multiple funds.
- Inclusion of insurance companies and pension funds in the reserved anchor investor category is suggested.
Enhanced Reservation for Long-term Institutions
- Within the anchor investor portion, the reservation for:
- Life insurers, pension funds, and domestic mutual funds to increase from 30% to 40%.
- One-third of this (approx. 13.3%) remains for domestic mutual funds.
- 7% is earmarked specifically for insurance companies and pension funds.
- Life insurers, pension funds, and domestic mutual funds to increase from 30% to 40%.
Objective of the Reform
To align IPO structures with:
- Market demand and mutual fund flows
- Ground realities of retail application limits
- The goal of maintaining long-term investor confidence in India’s capital markets
