In today’s Finshots we tell you about the changes SEBI is mulling over for IPOs and how they could reshape the markets in big ways and small.

The Story

SEBI wants to make India more IPO-friendly. It’s testing the waters with a bold consultation paper. The idea is simple. If you’re a corporate giant trying to list today, two rules could scare you off.

#1 – The free float. If your post-IPO market value crosses ₹1 lakh crore, the rules force you to raise at least ₹5,000 crores and sell at least 5% of your company’s total shares to the public. (Post-IPO market cap is just the company’s value on listing day i.e. offer price × total shares) So imagine being forced to part with that much at once. It means raising a huge pool of money from the public in one shot, like LIC’s ₹21,000 crore IPO in 2022 that nearly drained liquidity from the system.

#2 – The timeline. Once listed, you must bump up public shareholding to at least 10% in two years from the date of listing, and to 25% in five (years).

These rules differ slightly by IPO size, but you get the gist.

And the reason we say these rules could scare off companies is simple. Just look at NSE and Reliance Jio. Both have been circling IPO plans for years, but the numbers don’t add up. The free float is too big, the dilution too steep, and the timelines too tight.

The paper spells this issue nicely…

In terms of the existing provisions an issuer with a post issue market cap of ₹5,00,000 Cr is required to ensure a minimum public offer of ₹30,000 Cr (5,000 Cr plus 5% of 5,00,000). For an issuer with a post issue market cap of ₹10,00,000 Cr, the requirement would rise to ₹55,000 Cr (5,000 Cr plus 5% of 10,00,000). Executing such large public issues may be challenging, especially in volatile market conditions, as investor demand is influenced by several factors, including market sentiment.

So, big IPOs have waited. And waited.

And now, SEBI’s paper suggests sweeping fixes.

The proposals? Well, there are 6. But we won’t go over each of them one by one. All you need to know is that the bigger the company is, the less it needs to sell to the public.

For instance, instead of forcing 5–10% minimum public offer during IPO, SEBI wants to shrink the float to 8% for mid-large firms, 2.75% for mega ones, and just 2.5% for the super league above ₹5 lakh crores. At the same time, firms could get more time to hit the 25% public shareholding mark, as much as 10 years for the very large ones.

And the regulator has also promised to drag the shadowy grey market into the open with a regulated pre-IPO platform.

So put together, these proposals could unlock a few big listings that have been frozen for years. Reliance Jio, NSE, Flipkart, maybe even mega PSU arms!

Take Jio, for instance. At today’s ₹10 lakh crore valuation, existing rules would have forced a ₹50,000+ crore public offer. And that’s too large a supply for Indian markets to absorb. But under the new 2.5% float, it drops to ₹25,000 crores, which seems feasible at last.

So let’s for a moment say that these proposals become law, and the IPOs finally hit the market… What happens next?

Well, we could think of it as a new IPO economy.

For bankers, even a 2.5% float is enough to make India one of the hottest fee pools globally. Hyundai Motors’ ₹27,000 crore IPO is a proof, where banks netted nearly ₹490 crores in merchant banking fees. So a stream of big listings could turn IPO advisory into a feast.

Then passive flows will follow for many fund houses that track the index, because a large market capitalisation combined with meeting certain eligibility criteria would demand index inclusion. And every ETF tracking the Nifty or Sensex will be forced to buy its shares. So the downstream effect could be a flood of AUM (asset under management) realignment and portfolio shuffling.

The frenzy is also obvious for brokers and registrars. LIC’s IPO saw millions of retail applications, and a Jio or NSE float, even at half the size, could smash that. The only catch here is that retail demand will always exceed supply. And with floats smaller than before, oversubscription could be brutal. That means more activity for intermediaries but also more frustration for retail investors.

For distributors, from banks to fintechs, every mega IPO doubles as a customer-acquisition drive. They don’t just process IPOs but also use them to pull in sticky investors. And for regulators, this raises governance stakes since smaller floats mean less public scrutiny.

So yeah, the consultation paper is technical. But in spirit, it’s saying: let’s stop pretending our giants will sell 10% in one go to list. Let’s tweak the rules so that they stay home instead of considering a foreign exchange listing. So it’s about liquidity, fees and flows but also about market depth, retail access, and credibility.

Which makes us ask how other countries handle this?

Well, let’s just say that this isn’t an India-only problem.

Take the largest global IPO of Saudi Aramco in 2019. It raised over $25 billion with just a 1.6% public float. A record, sure, but trading stayed thin. Hong Kong usually asks for 25%, but for big companies it can cut that down to 10%, and it can be exempted if there’s enough evidence that the shares of the issuer may not be concentrated in the hands of a few shareholders. Singapore too has allowed listings with floats around 10–12%. And in the US, giants like Facebook (2012) and Alibaba (2014) sold only 13–15% of their stock in public float, raising billions without giving up control (since they’re often protected by dual-class shares that give founders extra voting power).

Put simply, India’s rule around minimum public shareholding is steep in this global context. And SEBI’s consultation paper is basically an admission that if you want to keep your giants at home, you can’t insist on massive floats.

Still, smaller public offerings come with risks. With only 2–3% of shares available during the IPO, there could be a swing in prices after listings. Governance could be an issue if giants dominate markets they also control. And there’s the crowding-out problem: big IPOs could lock crores in bank accounts through ASBA during the subscription process, and multiple mega IPOs could suck capital away from smaller issues and even the secondary market.

That’s why this is just a consultation paper. Because the balancing act isn’t obvious. But what’s clear for now is that if the proposals pass, India’s IPO economy won’t just be about startups chasing glamour listings. It’ll be about mega-floats reshaping flows, fees, and fund allocations for years. And it also shows how far we’ve come. Back in 1993, when our markets were small and evolving, the minimum public offer was a whopping 60%!

So whether you’re a banker, a fund manager, or just a retail investor with a demat account, the ripple effects will reach you. And if you’ve been waiting years for Reliance Jio or NSE to finally list, this paper might just be a real glimmer of hope.

Until then…

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