Transforming India’s IPO Landscape: The Impact of Sebi’s Reforms

In a significant shift for the Indian financial market, the Securities and Exchange Board of India (Sebi) has initiated a series of reforms aimed at revamping the Initial Public Offering (IPO) process. These changes, rolled out in phases starting from March 2024 and extending into 2025, are set to reshape how marquee listings, such as those of the National Stock Exchange (NSE) and Reliance Jio, come to market. By potentially unlocking long-delayed deals and minimizing regulatory bottlenecks, these reforms promise to enhance the overall efficiency of the IPO landscape.

Why is Sebi Reforming the IPO Process Now?

The impetus for these reforms stems from a dual need: addressing the growing demand for capital and mitigating the delays that have plagued the IPO approval process. In the fiscal year 2025, a staggering ₹4.3 trillion was raised through primary markets, with an additional ₹1.4 trillion anticipated in the current year. However, many companies have faced approval delays extending six months or more.

Narinder Wadhwa, managing director and CEO of SKI Capital Services, noted, “Sebi recently accelerated the IPO approval process, aiming to clear most filings within three months, something that previously took up to six months." This shift is crucial for companies eager to access public capital swiftly.

How Will Sebi Speed Up Approvals?

At the heart of Sebi’s reform strategy lies the integration of technology and an increase in manpower. Experts have highlighted that the regulator is already leveraging artificial intelligence tools to scan disclosures and identify inconsistencies, handling up to 80% of routine data checks.

Additionally, Sebi’s corporate finance department has ramped up its processing capacity, tackling a record number of applications in recent months. By engaging merchant bankers earlier in the process, Sebi aims to facilitate quick clarifications, reducing the lengthy back-and-forth that has traditionally characterized IPO approvals.

Wadhwa emphasized the benefits of these changes: “For companies, faster IPO approvals mean quicker access to public capital, supporting their growth and expansion plans. For the market, this move is likely to boost IPO activity, with expectations of record fundraising in 2025."

What Are the New Disclosure Requirements?

In March, Sebi introduced an expanded 31-point disclosure checklist for companies seeking to go public. This checklist encompasses a range of critical areas, including conflicts of interest among promoters, management, shareholders, and service providers, as well as related-party transactions, group structures, pending litigation, and private shareholder agreements affecting governance.

Wadhwa explained, “To further speed up the process, Sebi has introduced 31 new mandatory disclosures related to conflicts of interest involving management, large shareholders, subsidiaries, and third-party service providers. These are designed to promote transparency and reduce the need for back-and-forth clarifications, allowing regulators to process applications more efficiently."

However, some experts caution that the requirement to disclose pending litigation could pose challenges for companies, particularly when the material impact of such cases is uncertain. Saurabh Bansal, founder of Finatwork Investment Advisor, remarked, “Companies may need to carefully assess the materiality of each case to avoid unnecessary disclosures or potential legal repercussions."

Will the New Rules Complicate Large Upcoming IPOs?

The expanded disclosure framework presents a significant compliance burden for complex conglomerates. Legal experts specializing in IPOs have indicated that Reliance Jio will need to detail its various verticals, cross-holdings, and extensive group transactions, while the NSE must address legacy regulatory concerns and governance issues linked to its clearing corporation.

Diviay Chadha, a partner at Singhania & Co., stated, “The expanded disclosure framework is expected to create substantial challenges for NSE and Jio due to their complex corporate structures and extensive related-party transactions. They may need longer to prepare."

While AI could expedite approvals, the extensive disclosure obligations may counteract these gains. Chadha noted that the new rules could influence valuations through greater transparency, suggesting that they may ultimately facilitate rather than obstruct marquee listings.

What Risks Do Companies Face with These Rules?

While the reforms aim to shorten timelines, they also introduce new risks related to accuracy and liability. Companies must navigate the potential pitfalls of omitted or misleading disclosures concerning promoter links, material litigation, or private agreements, which could lead to rejection or penalties.

Alay Razvi, managing partner at Accord Juris, cautioned, “The new disclosure checklist may increase legal risks. Any inaccurate or omitted disclosure, whether related to group structures or related-party dealings, opens companies to rejection or future liability." With Sebi employing AI for vetting, any gaps or inconsistencies in disclosures are less likely to go unnoticed. Razvi emphasized the need for issuers to exercise heightened caution, as any ambiguity could result in swift regulatory action that jeopardizes an IPO’s viability after months of preparation.

Conclusion

Sebi’s reforms are poised to significantly alter the landscape of IPOs in India, balancing the need for speed with the imperative of accountability. As companies like NSE and Reliance Jio navigate these new waters, the emphasis on transparency and compliance will be paramount. While the potential for increased fundraising activity is promising, the accompanying risks and challenges will require careful management. Ultimately, these changes may herald a new era for India’s capital markets, fostering a more efficient and transparent environment for both companies and investors.