In a consultation document, the Sebi proposed a flexible retail allocation framework for initial public offerings (IPOs) exceeding Rs 5,000 crore, permitting the retail share to reduce from 35 per cent to as low as 25 per cent incrementally, while increasing the QIB (qualified institutional buyer) portion from 50 per cent to 60 per cent to boost liquidity in mega IPOs.
Instances from Sebi’s consultation document highlight Hyundai Motor’s Rs 27,859 crore IPO, which had retail subscriptions of merely 0.4 time, Hexaware Technologies’ Rs 8,750 crore IPO (retail subscription at 0.1 time) and Afcons Infra’s Rs 5,430 crore IPO that recorded retail subscriptions of 0.9 times.
Taming Speculative Bets
Sebi has intervened in various ways to mitigate the growing interest of retail investors in speculative bets and making quick gains. For instance, it mandated the exchanges to eliminate multiple expiry dates from futures and options trading. Its report revealed that net loss of retail investors rose to Rs 1.06 lakh crore in FY 25 from Rs 74.81 crore in FY 24. Whereas the average trading loss also jumped to Rs 1.1 lakh with 91 per cent retail traders losing money in the speculation game.
A Sebi study has revealed that over 50 per cent of IPO shares allotted to retail investors (by value) between April 2021 and December 2023 were sold within a week of listing. This figure rose to 70 per cent within a year.
Investor behaviour was closely linked to returns. When listing gains exceeded 20 per cent, 67.6 per cent of shares were offloaded in the first week. In contrast, only 23.3 per cent were sold when IPOs delivered negative returns.
Retail investors often treat IPOs as speculative bets, with many exiting on listing day to pocket quick gains. By rebalancing the allocation, reducing retail share and increasing institutional reservation, Sebi appears to be nudging the market toward more fundamentally driven participation, stated Mundhra.
Passive Participation Through DIIs
The Sebi proposal indicates that if the shares reserved for small investors are not fully subscribed, the remaining shares will be allocated to large institutions (like mutual funds, insurance firms, banks, etc.), ensuring that all shares can be sold efficiently.
Moreover, to compensate for the decreased retail allotment, the paper suggests increasing the reservation for domestic mutual funds in the non-anchor QIB category from the existing 5 per cent to 15 per cent. Sebi states that this would maintain elevated levels of active retail involvement, integrating both direct and mutual fund investment options.
Limited Impact On IPOs Frenzy
In 2024, only seven IPOs exceeding Rs 5,000 crore were issued, featuring companies like Vishal Mega Mart and Bajaj Housing Finance, which debuted strongly, listing at premiums of 44 per cent and 135 per cent, respectively. However, the others delivered muted returns.
This trend has persisted into 2025, with two only significant IPOs, HDB Financial Services and Hexaware Technologies, which debuted with issue size over Rs 5,000 crore.
In sharp contrast, IPOs under Rs 5,000 crore consistently excelled in 2024, with 84 of these issued during the year, and 55 of them providing strong gains on listing day ranging from 15 to 100 per cent.
The impact on retail participation is likely to be limited. As of FY25, around 80 mainboard IPOs have hit the market, so there are still plenty of opportunities for retail investors. This change mainly affects very large IPOs and won’t reduce overall retail access in any major way, Gagdani highlighted.
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