Mumbai: India’s markets regulator on Friday unveiled a sweeping package of reforms designed to galvanize the capital markets by making fundraising easier, liberalizing listing norms for large companies, and tightening governance across key institutions, including stock exchanges.
The decisions, taken at a Securities and Exchange Board of India (Sebi) board meeting, will reshape everything from mega listings and related-party transactions to the way stock exchanges, brokers, and investment advisors are regulated.
By easing compliance rules, broadening investment avenues, and giving long-term domestic institutions a bigger role in IPOs, the measures aim to balance operational flexibility for companies with stronger safeguards for investors.
IPO norms and fundraising liberalized
In a move to attract marquee listings, Sebi has eased stake dilution norms for very large companies and broadened the investor base.
Companies with a post-issue market capitalization between ₹50,000 crore and ₹1 trillion can now have a minimum issue size of ₹1,000 crore plus 8% and will have five years to meet the 25% minimum public shareholding (MPS) rule. Previously, such companies fell under a broader category (market cap above ₹4,000 crore), which required a higher minimum public offer of 10% and a shorter timeline of three years to achieve the 25% MPS.
For firms valued above ₹1 trillion, the dilution requirements and timelines for MPS have been further relaxed.
For market cap between ₹1 trillion and ₹5 trillion, the minimum public offer is ₹6,250 crore plus at least 2.75% of the post-issue market cap. For market cap above ₹5 trillion, the minimum public offer is ₹15,000 crore plus at least 1% of the post-issue market cap, with a minimum dilution of 2.5%.
For both tiers, if public shareholding is under 15% at the time of listing, the company has five years to reach 15% MPS and 10 years to reach 25%. If it is 15% or higher, the company has five years to reach the 25% MPS mark.
Experts said this amendment may cause some pain in the short term for some issuers, but it is a positive move in the long term.
“The more limited the liquidity of a specific stock, the greater the likelihood that a part of its valuation is driven by scarcity over fundamentals, which is not ideal,” said Nishant Shah, managing partner & CEO of Jonosfero. “Some feel that letting the price of, say, 10% of the stock dictate the value of the whole is akin to the tail wagging the dog. Worse, it is difficult to isolate the scarcity premium from the price of the stock. So this is a positive move in the long run.”
The number of anchor allottees for IPOs up to ₹250 crore will increase to up to 15 allottees from an unspecified number earlier, with a minimum of five. Insurance companies and pension funds will now be included in the reserved anchor allocation, with the total reserved portion for institutional players rising from 33% to 40%.
It also provides structured opportunities for long-term domestic institutional investors (DIIs) such as insurers and pension funds, which is expected to enhance the credibility, stability, and quality of the anchor book.
Makarand Joshi, founder partner at compliance firm MMJC and Associates, said by reducing initial dilution requirements for companies with higher market capitalisations, Sebi aims to ease fundraising pressures while retaining the retail quota at 35%.
“This historic shift will transform India’s primary market by making companies with higher valuation list with more flexibility to meet dilution requirements, considering scenarios which are in the best interest of companies,” he said.
For firms valued above ₹1,00,000 crore, the dilution requirements and timelines for MPS have been further relaxed.
The number of anchor allottees for IPOs up to ₹250 crore will increase to up to 15 allottees, with a minimum of five. Insurance companies and pension funds will now be included in the reserved anchor allocation, with the total reserved portion for institutional players rising from 33% to 40%.
Governance and Compliance Rejigged
The board also cleared key changes to corporate governance and compliance rules, aiming to make operations easier while safeguarding investors.
A new turnover-based framework will determine the materiality of RPTs, easing the compliance burden for large listed entities. The current threshold of ₹1,000 crore or 10% of turnover will be replaced by a graduated system linked to a company’s scale.
To strengthen governance at stock exchanges and other market infrastructure institutions (MIIs), Sebi has mandated the appointment of at least two executive directors to head key verticals alongside the managing director.
New Avenues for Investment
Sebi has greenlit proposals to deepen the market by creating new investment pathways and reclassifying existing instruments.
REITs (real estate investment trusts) and InvITs (infrastructure investment trusts) will now be granted equity status, allowing mutual funds to include them in equity schemes. This is expected to boost liquidity and increase access for retail investors.
The scope for “strategic investors” in REITs and InvITs has also been widened to include foreign investors and most qualified institutional buyers (QIBs). This implies that REITs and InvITs can attract capital from a much broader investor base.
Jyoti Prakash Gadia, managing director at Resurgent India, said that the treatment of REITs and Invits as equity instead of a debt product is a long-awaited amendment that will facilitate the growth of equity-based mutual funds. “This will also indirectly strengthen the financial position of the issuers of REITs and InvITs with a positive impact on the leverage ratio.”
A new “AI-only” AIF scheme exclusively for accredited investors will be introduced with a lighter regulatory framework, including no cap on the number of investors and an extended tenure. The minimum investment for large value funds (LVFs) has also been lowered from ₹70 crore to ₹25 crore, in an effort to attract substantial risk capital under a more flexible regime, thereby facilitating greater capital formation, Sebi said.
The broader goal, Sebi added, is to enable sophisticated investors to more efficiently fund entrepreneurs and risk-takers.
The board has facilitated the participation of resident Indians in foreign portfolio investors (FPIs) by allowing retail schemes based in International Financial Services Centres (IFSCs) with Indian sponsors or managers to register as FPIs.
This makes a difference by expanding the FPI registration framework beyond just alternative investment funds (AIFs) in IFSCs to also include retail schemes, thereby broadening the avenues for Indian-managed funds in IFSCs to operate.
The changes also enable Indian mutual funds to invest in overseas MFs or unit trusts holding Indian securities. Gadia explained that FPIs put in money in Indian markets on a regular basis and routing it through an IFSC like GIFT City is being facilitated through a revised simpler mechanism.
Streamlining for Intermediaries
The regulator also approved measures to simplify operations for market intermediaries.
Credit rating agencies (CRAs) are now permitted to rate financial instruments overseen by other regulators like the RBI and Irdai, provided these activities are conducted through a ring-fenced separate business unit.
Norms for investment advisors (IAs) and research analysts (RAs) have been eased, including simplifying the registration process by removing the need for certain documents and relaxing educational qualifications. They will also be allowed to share past performance data with clients upon request, with appropriate disclaimers.
