The Securities and Exchange Board of India (Sebi) is set to introduce key reforms aimed at facilitating smoother mega initial public offerings (IPOs).

Illustration: Dominic Xavier/Rediff

Key among the proposals is a reduction in the quota reserved for individual investors — those applying for less than Rs 2,00,000 per application — from the current 35 per cent to 25 per cent for large IPOs (issue size above Rs 5,000 crore).

The allocation for qualified institutional buyers (QIBs) is proposed to rise from 50 per cent to 60 per cent, in a move designed to improve efficiency and stability in large public issues.

Additionally, Sebi is also considering easing the mandatory dilution norms for mega listings, according to sources. Presently, companies valued at over Rs 1 trillion must dilute at least 5 per cent in an IPO.

The regulator is weighing a plan to halve this requirement to 2.5 per cent, offering more listing flexibility to large firms such as Reliance Jio Infocomm, National Stock Exchange (NSE) and Flipkart that may not need to raise large sums from the public at the outset, told people familiar with the development.

Currently, a company valued at Rs 1 trillion needs to sell shares worth Rs 5,500 crore in an IPO; under the new discussions, the required offer could drop significantly.

Investment bankers have welcomed Sebi’s initiatives, citing a surge in $1-billion-plus listings and the operational challenges of mobilising millions of retail investors for large IPOs.

For example, NSE is valued at around Rs 6 trillion in the unlisted market, translating to an IPO size of nearly Rs 30,000 crore under existing rules.

Similarly, Jio’s potential IPO, with a value exceeding Rs 10 trillion, could require a public issue well above Rs 50,000 crore.

Recent experience, such as Hyundai Motor India’s Rs 27,859 crore IPO — where less than half the retail allocation was subscribed — highlights the difficulties of meeting high retail quotas in jumbo offerings.

Reducing the initial offer size would give major companies the flexibility to calibrate their public float, rather than being compelled to dilute large stakes all at once.

Industry experts have praised Sebi’s market-responsive approach.

“For large issues, ensuring sufficient institutional demand is crucial — institutions often manage retail money through mutual funds.

“From a long-term perspective, a higher institutional quota and lower retail allocation is a positive step,” said Bhavesh Shah, MD & Head, Investment Banking, Equirus.

Legal experts note Sebi’s track record of amending rules as needed — first for Coal India, then LIC — and see further relaxation as beneficial.

“A case-by-case exemption power for Sebi would also aid in future scenarios that require flexibility,” said Madhurima Mukherjee Saha, Partner, JSA Advocates & Solicitors.

Saha added that for lower dilution, changes to the Securities Contract Regulation Rules (SCRR) will be required.

Another major proposal targets the anchor investor framework.

Sebi plans to raise the limit for anchor investor allottees for allocations above Rs 250 crore — benefiting large foreign portfolio investors who manage multiple funds.

Additionally, insurance companies and pension funds may be granted a larger share within the anchor investor category, with an increase in their reserved quota from 30 per cent to 40 per cent for such issues.

Experts said Sebi’s proposals align with shifting market dynamics — making it easier for mega-cap companies to list, boosting institutional participation and reducing operational strain on intermediaries.

Sebi boat to large floats

• Minimum dilution could be reduced from 5% to 2.5%: Sources
• Retail quota could shrink from 35% to 25%
• Institutional  investor quota could be raised from 50% to 60%
• Reservations for pension funds, insurance companies in anchor book
• Large IPOs like NSE, Jio, and Flipkart seen benefiting