Seven initial public offerings (IPOs) in the pipeline will qualify under the Securities & Exchange Board of India’s (SEBI) latest proposal to reduce reservation for retail investors and higher for qualified institutional buyers (QIBs).
According to data from Prime Database, these companies include LG Electronics’ Rs 15,000 crore have already received the regulator’s approval along with Credila Financial Services and Dorf-Ketal Chemicals India, both raising Rs 5,000 crore.
The companies who are awaiting the market regulator’s nod include, Rs Groww’s parent Billionbrains Garage Ventures (Rs 5,950), Tata Capital (Rs 18,000 crore), ICICI Prudential AMC (Rs 10,200 crore), and Inox Clean Energy (Rs 6,000 crore).
Other big names who are planning to launch their IPOs include the National Stock Exchange and Jio Infocomm.
SEBI proposes reduced retail share for large IPOs
Last week, a SEBI consultation paper on July 31 had proposed various changes in the IPO structure including discretionary anchor investor allotment and the reservation for institutional and the retail category. It said that for large IPOs above Rs 5,000 crore size, 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.
It noted that in QIB there is reservation for MFs in both anchor and non-anchor portions which also represents retail individual investors indirectly. Reducing the retail portio and increasing the QIB share better reflects market realities, ensures demand stability, and enhances issuer confidence in volatile or clustered market conditions.
SEBI’s paper said despite market fluctuations, retail investors have continued to invest in the capital markets through MFs. While direct participation by Retail investors has remained flat over the last 3 years, their participation through MFs has seen a secular uptick, it said and thus, the lower allocation to the Retail portion would be compensated by the higher reservation for domestic MFs in the QIB portion.
Shift to QIBs to improve pricing and market confidence
Experts believe that if implemented, this move will help in better price discovery. Vikram Jain, deputy vice president at IDBI Capital Markets and Securities said that this move is aimed at safeguarding retail investors and increasing transparency. This will also help companies to get listed at a fair market price.
The paper said, in case of large IPOs, the size of the Retail portion increases substantially and requires significant retail participation. This is especially challenging in tepid or uncertain markets. 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 retail to QIB category, under subscription has a negative impact on the sentiment for the IPO and also creates a negative perception.
SEBI took into consideration IPO subscription data of sizes more than or equal to Rs 5,000 crore since 2022 and observed that retail and NII subscription has remained muted. “While conglomerate and popular PSU IPOs like Bajaj Housing Finance, Tata Tech, LIC, Bharti Hexacom etc., saw robust response from retail/ NII, other issuers coming to the equity market with large sized IPOs saw an under subscription in both categories.” it said.
The retail portion of HDB Financial Services’s IPO was only subscribed 1.5 times, and Hexaware Technologies was only 0.1%.