IPO Process: Regulatory Changes Affecting the IPO Procedure

The Indian stock markets and economy, in general, are showing signs of optimism and robustness. One indicator of a robust financial market is how the primary market activity is shaping up. Continuing the trend of the past few years, the Indian primary market or IPO market is likely to see a lot of buzz in 2024 as well. According to reports, close to 153 companies have already made their stock market debut in the first half of 2024.  

An IPO (Initial Public Offering) is when a private company goes public by offering its shares on a stock exchange for the first time. Recently, SEBI announced some regulatory amendments to the IPO procedure. Let’s understand what has changed and how the IPO process will be affected.

Reduced Listing Timeline to T+3 Days

SEBI (Securities and Exchange Board of India) is the regulator for Indian financial markets. The regulator announced a reduction in the IPO listing timeline from T+6 to T+3 days. Effective December 1st, 2023, this change allows issuers (companies going public) quicker access to funds and ensures that you can receive your shares or refunds faster. 

Increased Transparency Requirements

As per SEBI guidelines, companies must now clearly specify their targets for IPO funds in the prospectus. If a company raises funds for inorganic growth, it must detail its targets. Otherwise, it cannot allocate more than 25% of the IPO proceeds for unspecified investments. This ensures investors have clear information on how funds will be used. 

Extended Lock-in Period for Anchor Investors

SEBI has also extended the lock-in period for anchor investors, who are typically large institutional buyers. Now, anchor investors can sell 50% of their shares after 30 days and the remaining 50% after 90 days. This helps reduce market volatility and protects retail investors from sharp price drops. 

Restrictions on Offer for Sale

Until recently, many companies used to use IPOs for offering an exit route to their promoters and stakeholders. Now, SEBI has limited the portion of shares that stakeholders can sell through an IPO. Major stakeholders (holding over 20%) can offload only 50% of their shares, while smaller stakeholders (holding less than 20%) can sell up to 10%. This measure aims to prevent large-scale sell-offs that could destabilise share prices. 

These changes aim to simplify the rules for IPOs and fundraising, making it easier for companies to access capital markets. As an investor, you can now expect improved transparency, faster processing and better governance in the IPO investing space. If you want to participate in the IPO market easily, you can open a Demat and trading account with Sharekhan.