SEBI issues around 100 comments for every DRHP, nearly half on risk factors: Study

Around 46% of SEBI's observations pertain to the Risk Factors section of the draft offer documents.

• Nearly half of SEBI's DRHP comments focus on risk factors
• Risk factors must be listed by importance and materiality
• 13% of comments address compliance and regulatory issues

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On average, the capital markets regulator Securities and Exchange Board of India (SEBI) issues around 100 comments to companies that have filed their draft offer document (DRHP) during the regulatory review. Of these comments, nearly half the comments are regarding the risk factor portion in the DRHP, noted an analysis by Uniqus and IVCA.

"The comments and clarifications sought by SEBI during this process often highlight not only company-specific concerns but also broader regulatory expectations and emerging focus areas in the capital markets," said the study.

Around 46 percent of observations pertain to the risk factors section, as companies need to provide clear, specific, and comprehensive disclosures of potential risks that investors may face when subscribing to the IPO.

"This emphasis aligns with SEBI's broader objective of ensuring that investors are fully informed of all material challenges and uncertainties that could impact the company's future performance," added the report.

From the risk factor comments, SEBI usually focuses on:

• Placement of risk: Securities and Exchange Board of India (SEBI) continues to stress that risk factors be listed by importance and materiality so investors can easily identify the most critical risks, especially the top 5, 10 and 25.
• Tariff impact: Disclosure of risks arising from potential reciprocal tariffs imposed by the US
• Concentration risk: Details on supplier/customer concentration and geographic concentration of customers.
• Quantitative headings: Risk headings should include key quantitative and qualitative details instead of being generic.
• Absence of long-term agreements: If the company lacks long-term vendor contracts, this must be disclosed as a risk factor.
• Experience of directors: Disclosure of risks related to inexperienced directors.
• Transactions with promoters: Clear explanation and commercial rationale for material transactions with promoters, promoter group entities, or related parties.
• Financial risks: Disclosure of issues such as negative operating cash flow, rising working capital needs, or lack of profitability.
• Manufacturing facility: Risk of manufacturing facilities becoming obsolete.
• OFS impact: Where the IPO is entirely an Offer for Sale (OFS), issuers must state that the company will not receive any proceeds.

Further, compliance and regulatory observations accounted for about 13 percent of comments, reflecting the importance of demonstrating adherence to laws and governance standards.

Together, the risk factors and regulatory compliance sections form a core part of SEBI’s review, highlighting key vulnerabilities and obligations investors should assess before investing.

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