India’s Capital Market Reforms 2025: Unlocking New Doors for Global Investors

In a landmark move, India has introduced sweeping reforms to ease foreign investor entry and recalibrate rules for large initial public offerings (IPOs). These changes, unveiled by the Securities and Exchange Board of India (SEBI) in September 2025, are designed to make India’s capital markets more attractive, competitive, and aligned with global standards.

The reforms arrive at a crucial juncture. Global capital has been cautious in recent years, and India, as one of the fastest-growing economies, is striving to ensure its financial markets remain a magnet for international and domestic investors alike.

Streamlined Entry for Foreign Investors

For the first time, low-risk foreign investors will be able to access India’s markets through a single-window clearance mechanism. The process will involve fewer documents and simplified compliance requirements. This is more than administrative convenience—it signals a shift toward a trust-based model. By reducing regulatory friction, India aims to encourage long-term foreign institutional investors (FIIs) and sovereign funds to deepen their presence.

Lower IPO Dilution for Corporate Giants: One of the most significant reforms relates to IPO rules. Previously, companies with very large valuations were required to sell at least 5% of their shares during listing. Now, businesses with a post-IPO market capitalization of ₹5 trillion or more can list by offering just 2.5% of their equity. This will ease concerns about excessive supply of shares overwhelming the market and provide corporates more flexibility in managing their ownership structures. For investors, it ensures a steady pipeline of high-value IPOs without destabilizing secondary markets.

Extended Timeline for Public Float Norms: Public float (the proportion of shares held by public investors) has always been a cornerstone of market transparency. Traditionally, companies had three years to reach a minimum 25% public shareholding after listing. Under the new framework:

• Firms valued between ₹500 billion and ₹1 trillion get five years to comply.

• Corporations exceeding ₹1 trillion can take up to ten years if their public holding at listing is below 15%.

This phased approach balances two objectives—ensuring that companies gradually diversify ownership while avoiding undue pressure on promoters to dilute too quickly.

Rationalized Related-Party Transaction Rules: Related-party transactions (RPTs) have long been viewed as a governance red flag. The earlier regime mandated disclosures and approvals even for smaller transactions. Now, the bar has been raised:

• Only large-value deals require shareholder approval.

• For firms with turnover above ₹200 billion, approvals are triggered only when transactions exceed 10% of turnover.

• For firms above ₹400 billion, the threshold is set at ₹50 billion.

This shift reduces compliance costs for large, well-governed corporations while maintaining safeguards against misuse.

Strengthening Stock Exchange Governance: To enhance accountability, SEBI has introduced governance checks at stock exchanges.

• The CEO’s powers will be curtailed, ensuring decisions are not overly concentrated.

• At least two executive directors will now be mandatory on exchange boards, improving oversight and operational balance.

This move aligns with global best practices where exchanges are regulated as systemically important institutions.

Boosting REITs as an Investment Class: Real Estate Investment Trusts (REITs) will now be treated as equity instruments. This reclassification allows mutual funds to invest more freely in REITs, expanding liquidity and investor participation. Infrastructure Investment Trusts (InvITs), however, will continue under the hybrid classification, reflecting their unique risk-return profiles.

What Do These Reforms Mean for India?

Greater Global Competitiveness – Simplified foreign investor entry is a strong signal that India wants to compete with markets like Singapore, Hong Kong, and Dubai for global capital.

A New Wave of IPOs – Relaxed dilution norms will encourage India’s corporate giants to test public markets without fear of overburdening them.

More Patient Capital – Extended timelines for public float provide stability and allow companies to plan gradual equity divestments.

Balance Between Growth and Governance – By raising RPT thresholds but strengthening exchange oversight, SEBI is walking a tightrope between encouraging business flexibility and safeguarding transparency.

Deepening Real Estate Investments – Classifying REITs as equity broadens the scope for institutional participation, benefiting both developers and investors.

These reforms mark a pivotal chapter in India’s journey to becoming a global financial hub. By easing compliance where appropriate and tightening governance where necessary, SEBI has crafted a reform package that speaks both to corporate India and international investors.

The true test, however, will lie in implementation. Will these changes attract a surge of new IPOs? Will global investors reallocate capital toward India in greater measure? And will governance standards remain robust despite relaxed norms?

The coming years will provide the answers. For now, India has clearly declared its intent: to open the gates wider, but keep the guardrails strong.