Sebi plans larger quota for institutions in big IPOs, trims retail share

By Rajesh Mascarenhas

 

India’s securities regulator has proposed changes to large initial public offerings, suggesting more shares for institutional buyers and fewer for retail investors amid a surge in new listings.

 

In a consultation paper released late Thursday, the Securities and Exchange Board of India recommended that for IPOs exceeding ₹5,000 crore ($573 million), the allocation for institutions be raised gradually from 50 per cent to 60 per cent, while the retail investor quota be cut to 25 per cent from 35 per cent at present. 

 

Sebi said its proposals reflect current market conditions, marked by robust mutual fund inflows and larger IPO sizes, even as direct retail participation in equities has stayed weak. For example, in Hyundai Motor India Ltd.’s record $3.3 billion deal, only 40 per cent of the retail quota was sold, while Hexaware Technologies Ltd.s’ $1 billion offering saw just 10 per cent retail uptake, the regulator said in the paper. 

 

 

Additionally, Sebi proposed expanding the anchor investor framework to include insurers and pension funds, alongside mutual funds. It suggested raising the reserved portion for these investors to 40 per cent of the anchor book, up from 30 per cent. Of this, one-third would still be kept for mutual funds, while 7 per cent would be specifically allocated to insurers and pension funds.

 

Currently, there is no reserved anchor quota for insurers or pension funds. If their proposed 7 per cent share is undersubscribed, the remainder will go to mutual funds, Sebi said. The regulator has invited public comments on the proposals by Aug. 21.