SEBI doubles limit for retail investors to Rs.2 lakh

MUMBAI - India’s capital markets regulator Monday doubled the investment limit for individual investors in initial public offerings (IPOs) to Rs.200,000 to attract more retail participants into such primary issues of companies.

The Securities and Exchange Board of India (SEBI) hiked the limit to ensure adequate retail participation as it opined that in large-sized public issues, the current limit of Rs.100,000 on the individual investor would mean the offer would need to attract a lot many entries to fill the allocation for the segment.

The last revision was done five years back to Rs.100,000 from the earlier Rs.50,000.

During the period, inflation had risen from about 4 percent in 2005 to about 12 percent currently. In the same period, the BSE Sensex has risen from about 8,000 points to about 18,000 points.

For an issue size of Rs.4,000 crore to Rs.6,000 crore, the limit of Rs.100,000 would mean that the issue has to receive a minimum of 150,000 to 200,000 applications from retail individual investors to fill the 35 percent allocation.

“This could be a daunting task considering that in case of well oversubscribed issues, the number of applications received from retail individual investors was in the range of Rs.35,000 to Rs.70,000,” SEBI opined in a discussion paper earlier.

Nearly 75 percent of the retail applications in recent public offerings were for value between Rs.80,000-Rs.100,000, said a SEBI study. In the non-institutional category, the number of applications below Rs.500,000 was negligible.

The regulator allows price discount for retail investors participating in initial public offers and follow-on offers. This discount is offered to attract retail investors into the market.