India’s IPO market may be on the verge of a mega transformation, with the Securities and Exchange Board of India (SEBI) proposing significant changes to the rules governing initial public offerings. While these changes are still at the proposal stage, they could have a far-reaching impact on the ability of large companies such as Reliance Jio and the National Stock Exchange (NSE) to go public without overburdening the market.

Currently, India’s IPO regulations require companies to offer a minimum of 10% of their shares to the public at the time of listing. For very large companies, this threshold is reduced to 5%. Additionally, listed companies are mandated to achieve a minimum of 25% public shareholding within a few years of listing.

SEBI, however, has identified a major challenge: when very large companies come out with IPOs, the massive issue size can overwhelm the market’s liquidity. This results in excess supply of shares, which puts pressure on the secondary market where daily trading takes place. To address this, SEBI has suggested a more flexible framework, particularly for mega-sized corporations.

Key Proposed Changes by SEBI

• Reduction in Minimum IPO Float:
  Companies with a post-IPO market capitalization above ₹500 crore may be allowed to float only 8% equity instead of the current 10%.

• Special Rules for Large Corporations:

  • For companies valued above ₹1 lakh crore, the minimum public offering could be cut from 5% to 2.75%.

  • For companies with valuations exceeding ₹5 lakh crore, the threshold could drop further to 2.5%.

• Relaxed Timeline for Public Shareholding:
  Presently, companies must achieve 25% public shareholding within 3 years. Under the new proposal:

  • Firms valued above ₹1 lakh crore may be given 5 years to reach 15% and 10 years to reach 25% public holding.

  • For firms with valuations above ₹500 crore, the timeline to achieve 25% shareholding could be extended from 3 years to 5 years.

The rationale behind these changes is clear: by reducing the minimum float requirements and extending compliance timelines, SEBI aims to ensure that IPOs remain manageable in size, thereby preventing a sudden drain on market liquidity.

Why the Change Was Needed

Large IPOs can strain the market significantly. For example, LIC’s IPO in 2022, despite offering only 3.5% of its shares, was still worth ₹21,000 crore. Similarly, Hyundai Motors raised around ₹27,000 crore in its IPO last year, while Green energy players like NTPC Green and others have brought issues worth ₹10,000–11,000 crore. These large offerings often create selling pressure in secondary markets, pulling liquidity away from already listed companies.

By reducing the required float, SEBI is ensuring that IPOs come in smaller, more digestible sizes. This approach allows for a gradual increase in public shareholding, thereby maintaining demand-supply balance in the stock market and protecting share prices from oversupply shocks.

How It Benefits Jio and NSE

The proposed reforms could particularly benefit Reliance Jio and the National Stock Exchange, both of which are seen as candidates for blockbuster IPOs.

Take Jio’s case: Citibank has pegged Jio’s equity valuation at around $120 billion (nearly ₹10 lakh crore). Under current norms, Jio would have to offer at least 5% to the public, which would translate into an IPO size of over ₹50,000 crore. Such a massive issue could be extremely difficult for Indian markets to absorb.

With SEBI’s new proposal of just 2.5%, however, Jio could launch an IPO worth around ₹26,000 crore – a far more feasible size that the market can comfortably handle. This makes Jio’s IPO not just possible but much more practical.

The NSE, with an estimated valuation of $50 billion (over ₹4.5 lakh crore), would also benefit. Reduced float requirements would make its listing smoother, avoiding the risk of straining market liquidity.

Market Expectations

All eyes are now on Reliance’s Annual General Meeting scheduled for August 29. Market watchers are keen to see if Chairman Mukesh Ambani drops any hints about Jio’s IPO. If it happens, Jio’s IPO could become the largest public offering in Indian history.

Meanwhile, the proposed SEBI reforms would not just benefit Jio and NSE but also other companies planning to go public in the near future. The adjustments will allow India’s capital markets to absorb large IPOs more smoothly while giving companies the flexibility to gradually increase public shareholding.

Conclusion

SEBI’s proposed changes mark a pivotal shift in India’s IPO landscape. By making IPO norms more flexible for mega-sized corporations, the regulator is opening doors for landmark listings such as Reliance Jio and NSE. If these proposals are implemented, investors and markets could see a new wave of large but manageable IPOs, with the potential to reshape India’s capital market ecosystem.

Disclaimer: This article is for informational purposes only. Please consult your financial advisor before making any investment decisions.