Sebi maintains retail quota in IPOs at 35%, drops plan for cut

Sebi takes a U turn on reducing retail quota in IPO allocation

The Securities and Exchange Board of India (Sebi) has withdrawn its proposal to reduce the retail quota in IPOs from 35 percent to 25 percent for issues exceeding Rs 5,000 crore. The proposal had been made considering the challenges faced by issuers in executing large offerings. Sebi said it has been constantly monitoring stakeholder feedback on the matter. Now the retail quota will remain as it is.

In its consultation paper, Sebi said that the challenges of lower retail subscription in large issues would be addressed through the current proposal of allowing lower stake dilution for such companies.

Sebi, in its consultation paper on the Review of Requirement of Minimum Public Offer and Timelines to Comply with MPS Norms under SCRR, floated on Monday, noted: “It is proposed that the retail quota in IPO allocations be retained at 35%, in line with Regulation 32 of SEBI (ICDR) Regulations, 2018, and accordingly, the consultation paper dated July 31, 2025, may be considered as modified to that extent.”

On Monday, Sebi floated another consultation paper proposing that large companies with a post-listing market cap of Rs 50,000 crore and above be allowed to list with lower stake dilution and be given more time to comply with minimum public shareholding (MPS) norms.

Sebi’s earlier proposal to reduce the retail quota in large IPOs had been met with strong views from investors and market participants. Market participants argued that Sebi should not only consider retail subscription data in such large issues but also evaluate pricing as a key factor.

Sebi has been hinting to companies and merchant bankers about pricing issues but refrained from issuing any directions because it may be considered micro-management or interference in the market dynamics.

In the July 31, 2025 consultation paper, Sebi had proposed a flexible retail allocation framework for IPOs exceeding Rs 5,000 crore. The plan allowed the retail quota to fall from 35 percent to 25 percent in a staggered manner, while increasing the qualified institutional buyer (QIB) quota from 50 percent to 60 percent to ensure demand stability.

The July paper stated: “It is proposed to revise the issue structure for large IPOs (i.e., those exceeding Rs 5,000 crore) under Regulation 6(1) of the SEBI (ICDR) Regulations. Specifically, the allocation to the Retail category may be reduced from the existing 35% to 25% in a graded manner, while the allocation to the QIB category may be increased from 50% to 60% (up to Rs 8,000 crore) in a graded manner.”

Sebi also highlighted subscription challenges. It noted: “Given the present allocation methodology and experience in recent issues, these large retail portions require lakhs of retail applicants for the category to be fully subscribed.” For example, Hyundai Motor’s Rs 27,859 crore IPO saw retail subscription at just 0.4x; Hexaware Technologies’ Rs 8,750 crore issue was subscribed 0.1x; and Afcons Infra’s Rs 5,430 crore IPO saw just 0.9x subscription.

Sebi estimated that for a Rs 5,000 crore IPO, the minimum retail application size requires about 7–8 lakh bidders. For larger issues, such as a Rs 10,000 crore offer, at least 1.75 million applications would be needed.

The regulator further explained its rationale, noting that mutual funds already have a 5 percent reservation within the QIB category in both anchor and non-anchor portions, which indirectly represents retail investors. “Reducing the retail portion from 35% to 25% in a graded manner and increasing the QIB share to 60% better reflects market realities, ensures demand stability, and enhances issuer confidence in volatile or clustered market conditions,” it said.

Importantly, the consultation paper also proposed enhancing the reservation for mutual funds from the existing 5 percent to 15 percent in the Non-Anchor QIB category. “While direct participation by retail investors has remained flat over the last three years, their participation through MFs has seen a secular uptick. Thus, the lower allocation to the Retail portion would be compensated by the higher reservation for domestic MFs in the QIB portion,” Sebi added.

Sebi had received feedback from industry associations and merchant bankers to reduce the retail quota and later sought public feedback through a consultation paper.