The Securities and Exchange Board of India (Sebi) on Monday unveiled a five-tier framework aimed at easing IPO regulations for mega issuers, cutting minimum public offer requirements and extending timelines for reaching mandated public shareholding from five to ten years.
The changes are designed to make trillion‑rupee floats more manageable in a market where sudden dilution can create an “overhang,” weighing on prices even for fundamentally strong companies. But critics warn the new rules could produce wafer‑thin floats, constraining liquidity, distorting price discovery, and testing investor protection.
A major regulatory change before this new framework came in December 2021, when Sebi tightened rules for new-age tech companies and mandated stricter disclosures and utilization regulations for IPO proceeds.
This came in the wake of investor concerns after Paytm’s listing. Sebi required detailed disclosures about how companies price shares, barred them from using IPO funds for secondary acquisitions without naming targets, and cut anchor investor lock-in to 90 days from 30 days.
Interestingly, during the IPO of Life Insurance Corp. of India (LIC) in May 2022, the government and Sebi granted LIC extra time to meet minimum public shareholding. LIC received up to three additional years to reach 10% public ownership and a one-time exemption to achieve 25% within 10 years from listing, instead of the standard timelines.
Tiered floats. longer timelines
Under Sebi’s proposed framework, companies worth ₹50,000 crore- ₹1 trillion would need to offer at least ₹1,000 crore and 8% equity, while those in the ₹1-5 trillion band must float ₹6,250 crore or 2.75%.
Firms above ₹5 trillion face a requirement of ₹15,000 crore with just 1% dilution, though with a hard floor of 2.5% equity.
Timelines are stretched as well.
Companies in the ₹50,000 crore- ₹1 trillion range would have five years instead of three to reach 25% public shareholding. Firms above ₹1 trillion could get up to ten years: those starting with less than 15% public ownership must hit 15% within five years and 25% within a decade; those beginning above 15% must reach 25% within five years.
Sebi’s rationale
Sebi has justified the tiered approach by highlighting the difficulty of absorbing very large offerings at once. “One‑size‑fits‑all” rules, the regulator said, can force sudden dilution that drags prices down.
Market trends reinforce the logic.
The average IPO size has climbed from ₹1,488 crore in 2019‑20 to ₹2,057 crore in 2024‑25, with the largest issue leaping from SBI Cards’ ₹10,341 crore to Hyundai Motor India’s record ₹27,859 crore this year.
Sebi also noted that many recent large issuers started with less than 25% float but still saw healthy trading post-listing: 15 such companies since 2020 achieved median shareholder counts of 7.74 lakh, above the Nifty‑100’s 7.07 lakh, and annualized trading turnover of 57.7% of market cap, versus 37.6% for the Nifty‑100.
Several experts applauded Sebi’s flexibility for mega issuers.
Cyril Shroff, managing partner at Cyril Amarchand Mangaldas, called the proposal a “well‑calibrated step.”
“The proposal from Sebi is a balanced one. It reflects market realities of both a growing market and larger issuers like Jio. There is appetite but an IPO also has to be successful to ensure adequate trading post‑IPO and at base prices. Hence this is a positive move,” Shroff said.
Sudhir Bassi, executive director at Khaitan & Co, argued that thin floats should not worry investors given the sheer absolute size of these IPOs.
“Even with the proposed minimum public offer requirement, there will be sufficient liquidity. A longer compliance period reduces overhang and allows orderly increase in public holding,” he said.
“Take a ₹10 trillion company: the free float at IPO would be around ₹25,000 crore — that’s big enough to trade actively. Add pre‑IPO shareholders whose locked‑up stock will later enter the market, and you have depth. These offerings, typically $750 million–3 billion, are also large enough to attract global institutional investors,” Bassi added.
Key Takeaways:
Mega issuers now face lower minimum public offerings:
₹50,000 crore- ₹1 trillion: ₹1,000 crore / 8% equity
₹1-5 trillion: ₹6,250 crore / 2.75% equity
₹5 trillion: ₹15,000 crore / 1–2.5% equity
Extended Timelines: Public shareholding deadlines stretched from 5 to 10 years for the largest companies.
Rationale: Allows smoother market absorption and reduces overhang for very large IPOs.
Risks: Thin floats may limit liquidity, create volatility, and challenge investor protection; interim milestones are not yet defined.
Market Impact: Affects upcoming mega IPOs including Reliance Jio, Flipkart, Tata Capital, and LG Electronics India.
Risks and critiques
Some, however, warn that Sebi’s plan could backfire if issuers delay compliance.
Diviay Chadha, partner at Singhania & Co., said, “Under the framework, Jio’s mega IPO would get 5-10 years to reach minimum public shareholding. That may help absorption, but reducing retail allocation from 35% to 25% tightens availability even further, fuelling oversubscription and speculative volatility.”
Chadha added that allowing just 5% initial dilution could alienate global funds seeking deeper liquidity: “Investors may simply gravitate to Hong Kong or Singapore. Without binding interim milestones, 10 years could become a licence to indefinitely defer dilution.”
“Reliance Jio could list with just 1-2.5% dilution and still take a decade to reach 25%. That gives breathing room to the company, but leaves the market with wafer‑thin float. Such scarcity can create intense demand from retail and funds, spiking volatility. Sebi must embed milestones and stronger disclosure. Otherwise investor protection and market credibility are at risk,” said Navneet Krishna, lawyer and teacher at Dr BR Ambedkar National Law University, Sonepat.
Impact on upcoming IPOs
The framework would directly affect several high-profile listings.
Reliance Jio is reportedly planning India’s largest-ever IPO, raising about ₹52,200 crore by selling just a 5% stake. Flipkart is preparing a 2025 listing at a ₹4.98-5.8 trillion valuation after beginning its redomiciling to India. Tata Capital is aiming for a ₹15,000 crore float by September as an upper-layer NBFC. LG Electronics India is also reviving IPO plans, potentially raising ₹14,110 crore.
Other marquee names in the pipeline include OYO, with a ₹49,800– ₹58,100 crore valuation in FY26; Lenskart, which has already filed for a ₹2,150 crore issue; and Fabindia, with a pending offer. NSDL completed its ₹4,011 crore IPO last month, underscoring strong market appetite.
While supporters argue the reforms ensure mega IPOs remain attractive to global funds without overwhelming markets, critics caution that trimming retail allocation to 25% and permitting wafer‑thin floats could squeeze small investors, restrict liquidity, and deter long‑only institutional players who depend on deeper free floats for meaningful participation.
