SEBI Proposes Reduced Retail Share for Large IPOs, Increased QIB Allocation

Seven IPOs, including LG Electronics and Tata Capital, will qualify under SEBI's new proposal to reduce the retail quota and increase the reservation for qualified institutional buyers (QIBs). The proposal aims to improve pricing and market confidence by allowing QIBs to participate more in large IPOs, which will help companies get listed at a fair market price. The retail share for large IPOs may be reduced from 35% to 25%, while the QIB share may be increased from 50% to 60%. Experts believe this move will safeguard retail investors and increase transparency.

Seven upcoming initial public offerings (IPOs), including LG Electronics and Tata Capital, have qualified under the Securities & Exchange Board of India's (SEBI) new proposal to reduce the retail quota and increase the reservation for qualified institutional buyers (QIBs). The proposal aims to improve price discovery, boost QIB participation, and align retail access with market realities via mutual funds.

According to data from Prime Database, these companies include LG Electronics, Credila Financial Services, Dorf-Ketal Chemicals India, Billionbrains Garage Ventures (Rs 5,950 crore), Tata Capital (Rs 18,000 crore), ICICI Prudential AMC (Rs 10,200 crore), and Inox Clean Energy (Rs 6,000 crore). Other notable companies planning to launch IPOs include the National Stock Exchange and Jio Infocomm [1].

SEBI's proposal, outlined in a consultation paper from July 31, suggests reducing the retail share for large IPOs above Rs 5,000 crore from 35% to 25% in a graded manner. Simultaneously, the QIB share is proposed to be increased from 50% to 60% (up to Rs 8,000 crore) [1]. This move aims to better reflect market realities, ensure demand stability, and enhance issuer confidence in volatile or clustered market conditions.

Experts believe that this shift will facilitate better price discovery and safeguard retail investors. Vikram Jain, deputy vice president at IDBI Capital Markets and Securities, stated that this move is aimed at increasing transparency and protecting retail investors [1]. The proposal also noted that while direct retail participation has remained flat over the last three years, retail investors' participation through mutual funds has seen a secular uptick. Therefore, the lower allocation to the retail portion will be compensated by higher reservation for domestic mutual funds in the QIB portion [1].

The proposal took into consideration IPO subscription data of sizes more than or equal to Rs 5,000 crore since 2022. It observed that retail and non-institutional investor (NII) subscription has remained muted, with some large IPOs seeing under subscription in both categories. For instance, the retail portion of HDB Financial Services' IPO was only subscribed 1.5 times, and Hexaware Technologies was only 0.1% subscribed [1].

The new proposal is expected to bring significant changes to the IPO landscape in India, potentially enhancing market efficiency and investor confidence. Companies are likely to benefit from more stable and fair pricing, while retail investors may see improved transparency and protection [1].

References:
[1] https://www.financialexpress.com/market/ipo-news-seven-ipos-qualify-under-sebis-new-proposal-on-retail-quota-3936387/