SEBI Demands Merchant Bankers Get ’Realistic’ on Mega-IPO Valuations

Regulator cracks down on fantasy-land pricing for blockbuster public offerings.

Valuation Wake-Up Call

SEBI just told investment banks to quit inflating IPO numbers like balloon payments on a junk bond. The watchdog wants fairness—not fairy tales—when pricing mammoth public listings. No more pie-in-the-sky projections that leave retail investors holding the bag.

Finance With Teeth

The directive targets merchant bankers who’ve been treating IPO pricing like a speculative altcoin launch—all hype, zero substance. SEBI’s pushing for grounded, defensible valuations that actually reflect company performance. Not whatever number lets VCs cash out at peak fantasy.

Because nothing says 'healthy markets' like bankers finally being told to price IPOs like investments—not exit liquidity.

Training for DRHP

Varshney said the regulator is having a training session for merchant bankers, who prepare Draft Red Herring Prospectus (DRHP) papers for companies which want to go public. “If they are fully transparent in the first place, we don’t have to issue any observations. So we will also be training these merchant bankers that what we have noticed in your DRHP that you are not disclosing these and these information,” he stated.

Notably, SEBI has earlier this month proposed relaxing the minimum public offer requirements for very large companies, while also extending the timelines for them to meet minimum public shareholding norms.

The proposed framework, if implemented, aims to ease the immediate dilution burden on issuers, while still ensuring gradual compliance with public shareholding requirements.

As part of this approach, SEBI has suggested retaining the retail quota at 35 per cent, in line with the existing regulations. Instead of reducing retail participation, the regulator is looking to address issuer concerns by amending rules related to minimum public offer thresholds.

This marks a shift from its earlier consultation paper, issued on July 31, which had proposed cutting the retail quota for IPOs above ₹5,000 crore from 35 per cent to 25 per cent, citing difficulties faced by issuers in managing large issues.

In its consultation paper, SEBI noted that very large issuers often struggle to dilute substantial stakes through an IPO, as the market may not be able to absorb such a large supply of shares.

On the consultation paper, Varshney said, “The idea is how do we facilitate large IPOs to come out and tap the capital market. Now it is not intended to benefit any one particular IPO. It is a general reform in the capital market.”

“This consultation paper is in the public domain. We are awaiting the comments from all stakeholders. It is a classic example of what we say optimum regulation. How do we balance the need of the market and protection of the investors. So this is one example of ease of doing business that we are doing now,” he added.

Published on August 26, 2025