SEBI’s DRHP Reform Is A Start, But Disclosure Quality Still Falls Short For Retail Investors

India is in the midst of a strong and sustained IPO cycle. Primary markets have witnessed a steady flow of issuances, robust subscription levels across investor categories, and a sharp rise in retail participation. Seamless digital access, favourable market sentiment, and a series of successful listings have encouraged households to view IPOs as a mainstream investment avenue rather than sporadic opportunities. In such a fast-moving and optimistic environment, the quality, clarity, and credibility of disclosures assume far greater importance than ever before.

SEBI’s acknowledgement is timely

It is in this context that SEBI’s December Board decision on Draft Red Herring Prospectuses (DRHPs) merits close examination. The regulator has explicitly acknowledged that the DRHPs, in their current form, do not fully serve their intended purpose for investors, particularly retail investors. This recognition is important. For years, market participants have flagged that IPO offer documents have become excessively voluminous—dense with legal jargon and difficult for non-professional investors to navigate. SEBI’s appreciation of this concern is timely and welcome. Well begun is half done.

Problem of volume and legalese

SEBI has observed that the IPO documents routinely run into hundreds of pages, with repetitive risk disclosures, boilerplate language, and legalistic phrasing dominating the narrative. This is largely driven by a defensive disclosure culture, where the primary objective is to minimise litigation risk rather than to meaningfully inform investors. To address this, SEBI has approved the concept of a focused and standardised abridged prospectus at the DRHP stage, potentially replacing the current abridged prospectus issued at the Red Herring Prospectus stage, subject to consultation.

Quality of disclosure still a concern

This initiative squarely targets the problems of volume and legal complexity. It seeks to make the IPO documents more readable and accessible, especially for retail investors. However, this reform also highlights a key limitation in the regulator’s current approach. SEBI has largely framed the DRHP problem as one of length and legalese. What remains underappreciated is that the quality of disclosures themselves requires equally urgent attention.

A shorter document, by itself, does not guarantee better investor understanding. If the same gaps, omissions, and obfuscations persist, the result may simply be compressed opacity. The real challenge with the DRHPs lies not only in how much is disclosed but also in what is disclosed, how prominently it is presented, and whether it enables investors to make informed comparisons and judgements.

Retail investors at a disadvantage

Retail investors are structurally disadvantaged in IPOs. Unlike anchor investors and qualified institutional buyers, they do not have access to management interactions, analyst briefings or informal price discovery conversations. In a buoyant IPO market, where oversubscription is common and decision timelines are tight, these disadvantages are magnified. The DRHP is meant to bridge this information gap. Today, it falls short.

Need for retail-focused summaries

If SEBI’s stated objective is genuine retail empowerment, disclosures must be redesigned around retail investor needs, not merely around legal defensibility. A standardised Retail Investor Summary of around 20–30 pages should be mandated across all IPOs, written in plain language and following a uniform structure. This summary should clearly cover the business model, key revenue drivers, customer concentration, competitive landscape, promoter background and incentives, dilution impact, and specific use of proceeds. Uniformity would allow investors to compare offerings across issues rather than evaluate each DRHP in isolation.

Rethinking risk disclosures

Risk disclosures also need a fundamental rethink. Current DRHPs typically contain long lists of generic risks that apply to most businesses and provide little insight into what truly matters for a particular issuer. Issuers should be required to identify and prioritise their most material risks, ranked by impact and likelihood, with a clear explanation of potential financial consequences. Importantly, past outcomes should inform present risk disclosures.

In this regard, the historical performance of IPOs brought by the same set of merchant bankers deserves far greater prominence. Information on the last ten issues, or those launched over the past three years by the lead managers, should be clearly summarised and prominently highlighted. If even one of these issues has performed poorly post listing, that fact should be explicitly reflected in the risk factors. This would move risk disclosure from abstract possibility to demonstrated precedent, which is far more meaningful for retail investors.

Valuation transparency needed

Valuation transparency is another area where the disclosure quality remains inadequate. In a strong IPO cycle, pricing discipline plays a decisive role in long-term investor outcomes. SEBI should require issuers to disclose valuation multiples in a standardised format, benchmarked against listed peers and recent IPOs, including those managed by the same merchant bankers. Where an issuer is seeking a premium valuation, the justification should be supported by data and assumptions rather than generic growth narratives.

Strengthening merchant banker accountability

Merchant banker accountability must also be strengthened through better visibility. While current regulations require disclosure of past issue performance, this information is often buried deep within the DRHP or relegated to external references. SEBI should mandate a prominent table within the DRHP, summarising post-listing performance of recent IPOs managed by the lead bankers. Such visibility would create reputational incentives for more rigorous due diligence and realistic pricing.

Anchor investor disclosure gaps

Anchor investor disclosure represents one of the most significant gaps in the current framework. Anchor participation plays a powerful signalling role in IPOs, particularly during bullish markets. Retail investors often interpret anchor allocation as a mark of quality and confidence. Yet, the information provided to them is limited and backward-looking.

SEBI should require that, before the IPO opens for retail investors and after anchor allocation is finalised, an addendum be filed to the DRHP. This addendum should disclose the depth and breadth of anchor investor applications, including bid prices and quantities, not merely final allocations. Category-wise classification distinguishing mutual funds, foreign institutions, sovereign funds and other investors should be mandatory.

Critically, any anchor application by entities connected with the merchant bankers, including alternative investment funds or other vehicles managed by the same group, should be prominently disclosed and clearly flagged. Such transparency is essential to allow investors to assess the independence and quality of anchor demand.

Providing historical context

Historical context should also be provided. Retail investors should have access to information on how anchor investors have behaved in past IPOs, including average holding periods and post-lock-in sell-down patterns. Without this, anchor participation risks becoming a misleading signal rather than an informed one.

A step forward, but more needed

SEBI’s acknowledgement that DRHPs do not fully serve their intended purpose, especially in a booming IPO market, is an important and commendable step. Simplifying language and reducing volume is necessary. But it is not sufficient. The harder task lies in improving the quality, relevance and accountability of disclosures. Only when clarity, comparability and transparency are meaningfully enhanced will the DRHPs evolve from defensive legal documents into genuine instruments of retail investor empowerment.

The writer is a retired IRS officer and former Chief of Surveillance at SEBI, and an advisor to corporates, market participants and tech entrepreneurs.