SEBI Proposes to Reduce Retail Quota to 25% in IPO of Over ₹5,000 Crore

On July 31, 2025, the capital market regulator, Securities and Exchange Board of India (SEBI) has released a consultation paper proposing significant reforms to the allocation framework of large initial public offerings (IPOs). The changes aim to align investor participation with the growing scale of public issues in the Indian market.

Rising IPO Sizes with Flat Retail Participation

SEBI’s proposals come against the backdrop of a booming IPO market in India. While the average size of IPOs has steadily increased in recent years, the level of direct participation by retail investors has remained largely unchanged over the past three years. SEBI further stated that this stagnation is especially evident in larger offerings, where retail subscription levels have been notably subdued.

Proposed Allocation Changes: Institutional Focus

For IPOs exceeding ₹5,000 crore (approximately $571 million), SEBI has suggested rebalancing the quota distribution:

• Retail investor allocation: Proposed to be reduced from the current 35% to 25%.
• Institutional buyer allocation: Suggested to be increased from 50% to 60%, on a graded scale.

This shift reflects SEBI’s intent to encourage greater participation from institutional investors, particularly in high-value offerings.

Flexibility for Anchor Investors

SEBI has also proposed easing restrictions around anchor investor participation. For IPO allocations exceeding ₹250 crore, the number of permissible anchor investor allottees may be expanded. This move is designed to accommodate large foreign portfolio investors (FPIs) who manage multiple funds and require broader allocation flexibility.

Expanding Reserved Categories in Anchor Segment

To strengthen long-term investment in IPOs, SEBI has suggested expanding the reserved portion within the anchor investor category:

• New inclusions: Insurance companies and pension funds may be added to the reserved category, alongside domestic mutual funds.
• Revised allocation: The reservation for domestic mutual funds, life insurers, and pension funds may be raised from 30% to 40% of the anchor book. Out of this, one-third will remain reserved for mutual funds. 7% will be specifically earmarked for insurance and pension funds.

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SEBI has invited the public consultation and is seeking stakeholder feedback on these proposals until August 21. The regulator aims to finalise the guidelines following a thorough review of comments and industry inputs.

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