Sebi Plans To Cut Retail Quota In Large IPOs To 25%

The Securities and Exchange Board of India (Sebi) has proposed new rules for Initial Public Offerings (IPOs) that could reduce the number of shares set aside for retail investors in large issues. In a 20-page consultation paper, released on July 31, the regulator said, “Large IPOs with significant retail portions face the risk of under-subscription, which not only creates a negative perception but also limits issuers’ ability to price efficiently in volatile market windows.”

The regulator has invited stakeholders to submit comments on these proposals by August 21, 2025, via its online public consultation portal or email.

Retail Quota In IPOs To Be Limited To 25%

As per current norms, 35 per cent of the issue size is reserved for retail investors  who bid up to Rs 2 lakh. Sebi has now proposed that for IPOs bigger than Rs 5,000 crore, this quota could go down in a phased manner to 25 per cent, while the share for qualified institutional investors (QIBs) could go up from 50 per cent to 60 per cent.

Sebi said large IPOs often struggle to get enough retail applications. For instance, recent big-ticket IPOs like Hyundai Motor and Hexaware Technologies saw very low retail subscription levels. Hyundai Motor’s Rs 27,859 crore IPO in October 2024 drew retail bids worth only 0.4 times the quota, while Hexaware Technologies’ Rs 8,750 crore offer saw just 0.1x retail subscription. Sebi highlighted that at the current minimum lot size of Rs 12,000 – Rs 15,000, “an IPO of Rs 10,000 crore would require nearly 17.5 lakh unique retail applications for full subscription, a threshold rarely met outside marquee or PSU offerings.”

The regulator believes lowering the retail quota will help issuers avoid under-subscription and improve investor sentiment.

“Due to global situations and conflicts in different parts of the world, equity markets have been volatile, resulting in launch windows becoming narrower. While overflow of demand is permitted in IPOs from the retail to the QIB category, under-subscription has a negative impact on the sentiment for the IPO and also creates a negative perception,” said Sebi.

More Allocation Mutual Funds, Insurers

To balance out the lower retail participation, Sebi has suggested giving more room to domestic mutual funds, life insurance companies, and pension funds in large IPOs. 

Currently, mutual funds get one-third of the anchor investor allocation, and only 5 per cent of the non-anchor QIB portion. Sebi has proposed reserving 40 per cent of the anchor book for domestic institutional investors (DIIs) such as mutual funds, insurance companies, and pension funds. Further, the share of mutual funds in the non-anchor QIB quota would be increased to 15 per cent, up from the current 5 per cent.

Explaining the rationale, Sebi said, “Insurance and pension funds bring a stable source of funds, supporting long-term ownership of newly listed firms. Enhancing their reservation will diversify the anchor base and strengthen demand stability for issuers.”

Larger IPOs Could See More Anchor Investors

The regulator also plans to ease participation for large foreign portfolio investors (FPIs) operating multiple funds. At present, the number of anchor applications increases by 10 for every Rs 250 crore added to the issue size. The regulator has suggested increasing this limit to 15 investors per Rs 250 crore, which could allow more than 500 anchor investors in a Rs 30,000 crore offering.

The regulator said, “By increasing the number of permissible anchor lines, the framework would accommodate multiple FPI funds under different PANs, enabling larger, more diversified anchor books and attracting global funds with minimum size criteria.”