The Indian stock market is witnessing a wave of enthusiasm, driven by a series of current IPO launches and a growing pipeline of upcoming IPOs. As more companies prepare to go public and investor interest continues to rise, one key factor taking center stage is the role of SEBI regulations. The Securities and Exchange Board of India (SEBI) plays a crucial role in maintaining transparency, fairness, and discipline in the entire IPO process.

In recent times, SEBI has introduced several changes to IPO rules that directly impact both current IPO participants and those eagerly awaiting upcoming IPOs. These regulations aim to increase accountability among companies going public and protect retail investors from financial risk.

What Is SEBI and Why Does It Regulate IPOs?

SEBI is the regulatory authority for India’s securities market. Its primary goal is to protect investors and ensure that stock markets function efficiently and transparently. When it comes to IPOs (Initial Public Offerings), SEBI sets guidelines that every company must follow before they can raise money from the public.

SEBI’s regulations govern everything—from how a company discloses its financials to how shares are allotted among investors. By doing so, SEBI ensures that all investors, especially retail participants, get a fair chance in the allotment process.

Key SEBI Regulations Impacting IPO Allotments

Let’s look at some of the recent SEBI guidelines and how they affect current IPO allotments:

1. Minimum Application Size and Bid Lot

SEBI mandates a minimum bid lot size to standardize applications across retail and institutional investors. This ensures that all investors, irrespective of their category, are given an equal chance to participate within a defined framework.

For retail investors, the minimum lot size is determined so that investment stays within the ₹2 lakh cap, as per SEBI’s guidelines. This control avoids manipulation and makes participation in IPOs more structured and equitable.

2. Use of Lottery System in Oversubscribed IPOs

IPO oversubscription is common, especially for companies with high market demand or strong fundamentals. In such cases, SEBI requires the use of a lottery system for allotting shares to retail investors. This system ensures a random and unbiased method for share allocation.

According to stock market experts, the lottery-based allocation system guarantees that no applicant gets preferential treatment, maintaining equality among all participants. This regulation protects small investors from being sidelined in favor of bigger players.

3. Shortened IPO Listing Timeline (T+3 Rule)

In a major move to improve liquidity and efficiency, SEBI has reduced the listing timeline for IPOs from T+6 days to T+3 days, where “T” is the day of the IPO closure. This means that investors can now start trading their allotted shares just three days after the issue closes, which was earlier delayed by nearly a week.

This acceleration enhances investor confidence and allows quicker access to the capital markets. It also aligns Indian markets with global standards and reduces the lock-in period for investor funds.

4. Restrictions on Use of IPO Proceeds

To prevent misuse of public money, SEBI prohibits companies from using IPO proceeds for repaying loans taken by promoters, promoter groups, or related parties. This ensures that the raised capital is used for business expansion, technological upgrades, or working capital — all of which benefit shareholders in the long run.

This regulation strengthens investor trust, ensuring that funds are allocated for productive purposes rather than internal debt clearance.

6. Limitation on Selling Existing Shares in IPOs

SEBI also restricts the percentage of shares that existing shareholders, including promoters and early investors, can offload during an IPO. This measure ensures that the IPO is not merely a cash-out event for insiders, but a genuine capital-raising opportunity.

By capping this percentage, SEBI encourages promoters to retain long-term interest in the company and aligns their goals with those of the new investors.

7. Minimum Subscription Requirement

To ensure the viability of the IPO, SEBI mandates that a minimum of 90% of the issue must be subscribed for the IPO to go ahead. If this threshold isn’t met, the IPO is considered unsuccessful, and investors are refunded.

This safeguard prevents under-subscribed and potentially weak IPOs from entering the market, preserving capital market integrity.

8. Increased Disclosure Norms

SEBI now mandates companies to disclose all past capital raising activities, details about their valuations, and comparisons with listed peers.

Investors are better informed and can make decisions based on actual performance data rather than just future potential.

Conclusion

SEBI’s recent regulations are a step in the right direction. Whether you are applying for a current IPO or planning to invest in an upcoming IPO, these new guidelines ensure more fairness, transparency, and lower risk. While companies now face tighter scrutiny, investors benefit from improved confidence and reduced volatility.