The Indian stock market has grown significantly over the last few years, becoming the fourth largest in the world. This has been possible because of Indian and foreign investors who invest in various securities such as stocks, mutual funds, exchange traded funds, etc.
Among the numerous types of investors, one of the influential ones are Qualified Institutional Buyers (QIBs).
Who are qualified institutional buyers?
Qualified Institutional Buyers (QIBs) are large institutional investors that pool and manage substantial financial resources to invest in capital markets. Unlike individual investors, they rely on professional expertise, research capabilities, and market knowledge to make informed investment decisions and optimise returns. Due to their financial strength and institutional nature, regulatory authorities generally consider QIBs capable of evaluating investment opportunities independently, requiring comparatively lower regulatory oversight.
The term “Qualified Institutional Buyer” was first introduced under the SEBI (Disclosure and Investor Protection Guidelines) Regulations, 2000. These regulations were later replaced by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, which were subsequently superseded by the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018.
As per Regulation 2(1)(ss) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, Qualified Institutional Buyers include:
- Mutual funds, venture capital funds, alternative investment funds, and foreign venture capital investors registered with SEBI
- Foreign portfolio investors, excluding individuals, corporate entities, and family offices
- Public financial institutions
- Scheduled commercial banks
- Multilateral and bilateral development financial institutions
- State industrial development corporations
- Insurance companies registered with the Insurance Regulatory and Development Authority of India (IRDAI)
- Provident funds with a minimum corpus of ₹25 crore
- Pension funds with a minimum corpus of ₹25 crore
- National Investment Fund established by the Government of India
- Insurance funds managed by the Army, Navy, or Air Force of the Union of India
- Insurance funds administered by the Department of Posts, India
- Systemically important non-banking financial companies (NBFCs)
How do qualified institutional buyers practise work?
Participation in IPOs:
Qualified Institutional Buyers (QIBs) play a vital role in Initial Public Offerings (IPOs). In India, a designated portion of IPO shares is typically reserved for them, often around 50% in book-built issues. Their participation during the book-building process helps establish price discovery and determine the final issue price.
Institutional investments:
QIBs also invest through mechanisms such as Qualified Institutional Placements (QIPs), enabling listed companies to raise capital efficiently without undergoing lengthy public issuance procedures.
Large-scale investments:
These institutional investors allocate substantial capital across financial instruments such as equities, bonds, mutual funds, and other securities. Their investment approach often involves taking sizeable positions supported by detailed market evaluation.
Research-based approach:
QIBs rely on comprehensive research, financial modelling, and market intelligence to make investment decisions rather than depending on short-term market speculation.
Regulatory framework:
In India, QIBs operate under regulations established by the Securities and Exchange Board of India (SEBI), which defines eligibility requirements and lays down investment guidelines.
Impact on markets:
Due to the scale of their transactions, QIB activity can significantly influence market liquidity, pricing trends, and overall investor sentiment.
Rules & Regulations on qualified institutional buyers
Although Qualified Institutional Buyers (QIBs) are subject to comparatively lower regulatory scrutiny due to their institutional expertise and financial capability, their activities remain governed by a structured regulatory framework. Several rules and compliance requirements ensure transparency, fairness, and accountability in QIB-related transactions.
Listed companies in India are permitted to issue securities to recognised QIBs. However, companies that do not have equity shares listed on stock exchanges or fail to meet the prescribed minimum public shareholding requirements are not eligible to raise funds through this route.
The Securities and Exchange Board of India (SEBI) has established detailed regulations governing interactions between companies seeking capital and QIB investors. Strict eligibility norms apply to both issuers and investors to maintain fairness in allocations. Company promoters, or individuals associated with promoters, are restricted from accessing a QIB’s "specified securities"—securities that have not yet been converted into equity shares. This framework was introduced under the Disclosure and Investor Protection (DIP) Guidelines, 2000, to minimise preferential treatment and ensure impartial allocation practices.
Qualified Institutional Placements (QIPs) are overseen by SEBI-registered merchant bankers, who are responsible for managing the issuance process. These intermediaries must maintain proper documentation and submit a due diligence certificate to SEBI, confirming compliance with all applicable regulatory requirements.
Additionally, when specified securities are issued multiple times, regulations require a minimum interval of six months between two such placements. Stock exchanges may request reports and undertakings for these transactions where applicable. For QIPs and preferential allotments, submission of certain reports may not be mandatory; however, the merchant banker’s due diligence certificate remains compulsory. Failure to meet compliance requirements may result in the transaction being considered invalid under regulatory norms.
Advantages and disadvantages of QIBs
Advantages
Qualified institutional buyers bring increased liquidity to the financial markets because of their substantial financial resources. As they can engage in large-scale and high-volume investments, they create a more liquid market by increasing overall demand.
Furthermore, QIBs help companies raise significant funds and ensure successful fundraising rounds. Their active participation in IPOs and QIPs brings the required capital and helps companies expand their business. Additionally, the investments by QIBs positively affect investor sentiments as investors feel motivated to invest if financial experts such as QIBs invest in a specific security.
Disadvantages
One of the disadvantages of qualified institutional buyers is the concern about their market dominance. Since they invest a significant amount, their buying and selling can greatly impact the securities' price. The dominance can reduce healthy market competition and negatively affect smaller investors.
Furthermore, there are fewer regulations because of the high influence of QIBs. In some instances, the lack of utmost transparency has led to manipulation, insider trading, and abuse of power, undermining market integrity.
Conclusion
Qualified institutional buyers (QIBs) are among the most influential investors in the Indian market. As they are experts in the financial markets, they play a significant role in companies' fundraising measures before an IPO or after their shares trade publicly. However, as they have advantages and disadvantages, it is important to analyse their effect on the market before making any investment decision.
