SEBI’s New Anchor Book Rule Boosts FPI Participation

13 Sep 2025

A Big Reform for IPO Markets

The Securities and Exchange Board of India (SEBI) has introduced sweeping reforms to the anchor book mechanism in initial public offerings (IPOs). By widening eligibility to include insurance companies and pension funds and raising the reservation quota for anchor investors to 40%, SEBI is signaling its intent to make IPO participation more accessible and attractive for large institutional investors, especially foreign portfolio investors (FPIs).

This reform is not only expected to deepen India’s IPO markets but also boost long-term confidence among global investors looking for exposure to the country’s fast-growing equity ecosystem.

What Is the Anchor Book?

In the context of IPOs, the anchor book is a mechanism that allows institutional investors to buy shares before the public issue opens. These investors—known as anchor investors—help create initial demand and price stability, signaling confidence in the IPO to retail and other investors.

Traditionally, anchor investors included:

Qualified Institutional Buyers (QIBs)
Mutual funds
Foreign portfolio investors (FPIs)

The updated rules expand this list further, enabling insurance companies and pension funds—both domestic and international—to participate directly, strengthening the credibility and depth of IPO fundraising.

Key Changes Announced by SEBI

Expanded Eligibility
- Insurance companies (life and non-life) and pension funds can now act as anchor investors.
- This ensures participation from institutions with long-term investment horizons, adding stability.
Increased Reservation
- The reservation for anchor investors in IPOs has been raised from 30% to 40% of the QIB portion.
- This means larger pools of capital can be locked in ahead of the public issue.
Improved Allotment Transparency
- SEBI has mandated more disclosure around allotment in anchor books to ensure fairness.

Why It Matters

1. Boost for FPIs

Foreign Portfolio Investors, who often face stiff competition in securing IPO allocations, will benefit from greater anchor book capacity. This move aligns with India’s ambition to attract long-term stable foreign capital.

2. Insurance & Pension Funds’ Role

These institutions typically invest with decade-long horizons, making them ideal candidates to stabilize IPO demand and pricing. Their entry adds a new layer of trust and maturity to India’s capital markets.

3. Stronger IPO Pipeline

India has witnessed a surge in IPO activity in recent years. From fintech startups to traditional conglomerates, demand for equity funding has risen sharply. With SEBI’s reforms, companies launching IPOs can now rely on deeper institutional support.

Industry Response

Market Analysts:
“This reform comes at the right time, as India’s IPO pipeline is expected to remain strong through 2025–26. Having insurers and pension funds in the anchor book gives issuers confidence that demand will be robust.”
FPI Perspective:
“We welcome the move. Greater anchor book participation means better chances for global institutions to access India’s hottest IPOs without being crowded out,” said an FPI fund manager based in Singapore.
Domestic Investors:
Domestic insurers like LIC and pension funds such as EPFO are expected to play a major role in anchoring IPOs, giving retail investors reassurance.

How It Strengthens the Market

Price Stability: With larger anchor participation, IPOs are less likely to face post-listing volatility.
Institutional Confidence: The involvement of pension funds and insurers enhances credibility.
Global Alignment: The reform aligns India with global best practices, where pension funds play a central role in IPO markets.
Retail Benefit: Greater institutional anchoring reduces the risks for retail investors who often follow anchor participation cues.

Risks & Challenges

While the reforms are widely welcomed, experts caution about potential risks:

Concentration Risk: With 40% of the QIB portion going to anchors, smaller institutions might struggle to get allocations.
Lock-In Period: SEBI may need to enforce longer lock-in periods for new anchor categories to prevent quick exits.
Dependence on Institutions: Over-reliance on large institutional investors could reduce the diversity of IPO participation.

Global Context

Globally, pension funds and insurers are major participants in IPO anchor investments:

US & Canada: Pension funds routinely anchor big IPOs like tech unicorns.
Europe: Insurers are seen as long-term anchors, particularly in infrastructure IPOs.
Asia: Markets like Singapore and Hong Kong rely heavily on sovereign wealth and pension funds as anchors.

By aligning with these practices, India is signaling its maturity as a capital market hub.

The Bigger Picture: India’s Growth Story

India’s equity markets have become a magnet for global investors:

Market Capitalization: India recently crossed $5 trillion in market capitalization, the fourth largest in the world.
IPO Boom: 2021–24 saw record IPO volumes, with startups like Zomato, Nykaa, and LIC listing successfully.
Global Interest: India’s strong GDP growth, rising middle class, and policy reforms are attracting global pension funds and sovereign wealth funds.

SEBI’s anchor book reform is part of this larger narrative of opening doors for patient capital.

Conclusion: A Step Toward Market Maturity

By widening the scope of anchor investors and increasing reservation limits, SEBI is signaling its intent to strengthen IPO markets for the long term. The participation of insurers, pension funds, and FPIs will not only stabilize IPO demand but also build deeper trust in India’s equity ecosystem.

For companies, this means smoother fundraising. For investors, it means more confidence. And for India, it is another step toward becoming a global investment destination.

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