[By Aditi Srivastava]
The author is a student at National Law Institute University, Bhopal.
Introduction
In IPOs, media plays a crucial role in disseminating information to investors who may lack the expertise to interpret prospectuses. Media coverage can influence investment decisions and IPO performance, particularly affecting the opening price on listing day. Recently, CFA Institute’s March 2025 report has brought to light the significant challenges and misleading information pervading India’s expanding financial influencer landscape, where countless individuals are increasingly turning to social media for investment guidance. The draft red herring prospectus (“DRHP”) is the most important document, which contains all the information about the company, along with the details of the initial public offering.[1] The information given in the DRHP, is mainly advertised in brief for the investors in the form of newspaper articles, videos, banners, websites etc.
The Indian securities market is regulated by the Securities and Exchange Board of India (“SEBI”), a governmental body that primarily exercises its authority through the enactment of regulations. Notably, Regulation 42 read with Schedule IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, (“ICDR Regulations”) provides specific regulations for public communication, publicity, advertisements, and research reports related to IPOs. This article will discuss the various requirements of the advertisement rules and regulations and analyse the impact of the advertising with the help of various market studies along with the recent developments with the challenges that are faced in relation to advertising an IPO.
Applicability of the regulation and its ambit
Regulatory provisions governing IPO communications are structured around a temporal bifurcation, delineating between the ‘Pre-Filing Period’ (from board approval to DRHP filing with SEBI) and the ‘Post-Filing Period’ (from DRHP filing to IPO share allotment), with each period subject to distinct rules regarding permissible communications.[2] Pre-filing restrictions protect investors by curbing premature promotions and unverified information, preserving market integrity. Post-filing rules ensure timely, accurate disclosures while preventing deceptive or manipulative practices, balancing investor information needs with fair, transparent market conduct.
Within the context of these regulations, ‘Public communication or publicity material’ and ‘Advertisement’ are construed expansively, encompassing corporate and IPO advertisements of the company, documentaries about the company, periodical reports, press releases, newspaper insertions, and films in any print or electronic media, radio, television programs etc.
Navigating the Publicity during the Pre-Filing Period and Post-Filing Period
Prior to filing the DRHP, advertising must be consistent with established company practices, defined as the company’s historical approach to communicating with the public and its stakeholders. Any deviation necessitates a prominent disclaimer indicating that the company is ‘under process of filing a DRHP,’ contingent upon necessary approvals and prevailing market conditions.[3] This disclaimer must be presented legibly and with a prominence commensurate with the communication. All advertising materials, including recirculated materials, are subject to pre-clearance by Lead Managers and legal counsel of the company preparing for the IPO.[4] During this pre-filing period, advertisements are prohibited from referencing the IPO, except for the disclaimer, or alluding to share valuation or future financial projections. Within two days of filing the DRHP with SEBI, companies must publish a public announcement in widely circulated English, Hindi, and a regional language newspaper.[5] This informs the public of the filing and solicits feedback for SEBI regarding the DRHP’s disclosures.
The RHP is the final version of the preliminary prospectus, incorporating SEBI’s observations and approvals on the DRHP. After filing the RHP with the jurisdictional Registrar of Companies (“RoC”), a pre-IPO advertisement is mandated in the same newspapers, formally announcing the forthcoming IPO. If the RHP doesn’t include the price band (share price range), a separate price band advertisement is obligatory, published at least two working days before the IPO opens.[6] This price band advertisement, disseminated through the same newspapers as the pre-IPO advertisement, must specify the floor price or price band, incorporate relevant financial ratios for both ends of the band, and direct investors to the ‘Basis of Issue Price’section in the RHP, which elucidates the pricing rationale.[7] Following DRHP filing, advertising (excluding product/service advertisements) must prominently disclose the company’s IPO proposal and DRHP/RHP/Prospectus filing with SEBI/RoC. It must also state where these documents are accessible online (SEBI and Lead Managers’ websites).[8] A prescribed disclaimer, adapted for each IPO stage, must be legible and commensurate with the communication, and confined to factual information from the filed documents, precluding projections, estimates, forecasts, or extraneous material. The requirement for advertising to align with established company practices before filing the DRHP ensures that communications remain factual and consistent, preventing companies from using promotional content to mislead or unduly excite investors before regulatory review.
Formats for IPO advertisements principal restrictions
Pre-IPO advertisements, IPO opening and IPO closing advertisements have to be in the format and contain the minimum disclosures as specified in Parts A, B and C of Schedule X of the ICDR Regulations respectively on the letterhead of the Company along with details prescribed under Section 12(3)(c) of the Companies Act, 2013.[9] Any advertisements which contain highlights or information, other than the details contained in the format as specified in Parts A and B of Schedule X of the ICDR Regulations shall contain risk factors which outlines the potential risks and uncertainties associated with investing in the company and the IPO, such advertisements, must also comply with the provisions of Section 30 of the Companies Act, 2013, which require disclosures regarding the Company’s objects as per its memorandum of association, the liability of members, the amount of share capital of the Company, the names of the signatories to the memorandum of association and the number of shares subscribed for by them and details of the capital structure of the Company.[10]
Stringent guidelines, in line with Schedule IX of the Act, govern all company communications during the IPO process, aiming for transparency and preventing misleading promotion. Routine business communications are allowed but cannot promote the IPO, the closure announcements are permissible only after lead manager confirmation of sufficient subscription, registrar certification, and completion of allotment. Website content must align with the offer documents, maintaining consistent information scope and nature, excluding financial/operating forecasts, share valuation opinions, or IPO mentions.[11]
Prohibited activities include manipulative or deceptive advertisements, IPO-specific slogans, implying full subscription, offering incentives, unsubstantiated claims, complex language, promises of rapid profits, and featuring models or celebrities.[12] IPO advertisement cannot appear as television crawlers, press releases must avoid projections, forecasts, and value opinions and no information beyond the offer document can be provided; inadvertent disclosure requires immediate public dissemination.[13] Contravention, attempted contravention, or abetment of contravention of any regulations is punishable under Section 24(1) of the SEBI Act, with penalties including imprisonment for a term up to ten years, a fine up to ₹25 crore, or both. SEBI’s regulations on standardized formats, disclosures, and risk warnings ensure balanced, factual communication and prevent market manipulation, promoting investor confidence and market credibility.
Recent Developments and Challenges
Company history and share data are publicly accessible by law, offering transparency that highlights performance and helps companies compete effectively. A study conducted about the impact of social media on young adults pertaining to their stock market choices in India, and the data analysis shows that 92.4% of the respondents have come across financial investment content on social media networking platforms and 10% have been directly influenced to invest according to the suggested investment option as portrayed by the social media creator which clearly shows the power of the advertisement influence on not just investment, but also valuation.
Considering the developments, SEBI has mandated that companies launching public issues after September 1, 2024, must create and disseminate audiovisual (AV) presentations summarizing key disclosures from their offer documents . Such AV shall be prepared and placed in the public domain for all main board public issues and shall initially be in bilingual format i.e. English and Hindi. These AV presentations, covering crucial aspects of the issue and associated risks, will be made available on company, lead manager, and stock exchange websites, as well as via QR codes in the offer documents, ensuring broader accessibility and applicability is from October 01, 2024 onwards on a mandatory basis.
SEBI’s recent circular ‘Advertisement Code for Investment Advisers (IA) and Research Analysts (RA)’ from April 2023 also aims to regulate advertisements and promotional material disseminated by registered IAs and RAs. This code mandates that advertisements must be based on factual data, avoid guaranteeing returns or promising unrealistic outcomes, and it explicitly prohibits the use of misleading language, selective presentation of facts, and comparisons that are not fair or verifiable. Furthermore, the circular requires IAs and RAs to maintain records of all advertisements and promotional materials for SEBI’s scrutiny and also outlines procedures for addressing grievances related to advertisements.
Following these, the proliferation of “finfluencers”—unregistered individuals disseminating financial information and advice via social media—poses a significant challenge to the regulatory framework governing securities markets, particularly concerning the advertisement of IPOs. These actors, lacking the requisite authorization under the SEBI (Investment Advisers) Regulations, 2013 and the SEBI (Research Analysts) Regulations, 2014, often issue opinions and recommendations that may be biased, misleading, or even manipulative. A study by the CFA Institute exposes a compelling trend: a striking 82% of investors who draw inspiration from social media have acted upon advice provided by ‘finfluencers,’ with a notable 72% subsequently reporting gains. However, the report also underscores a critical regulatory gap, revealing that only a marginal 2% of these online financial advisors possess official registration with the SEBI.[14] This stark disparity raises serious concerns about the potential for inaccurate information and the urgent need for enhanced oversight in this digital domain. As highlighted in SEBI’s ‘Consultation paper on Association of SEBI Registered Intermediaries/Regulated Entities with Unregistered Entities (including Finfluencers)’, the association of regulated entities with such unregistered influencers for promotional activities, including IPO endorsements, raises concerns about investor protection and market integrity. To counteract this, SEBI has considered measures, as articulated in subsequent circulars, including prohibiting registered intermediaries from associating with unregistered finfluencers through monetary or non-monetary arrangements, restricting unregistered entities from providing specific investment advice or return claims, and mandating disclaimers in IPO advertisements as a caution against reliance on unverified sources. These potential actions aim to sever the nexus between regulated entities and unregistered advisors, thereby mitigating the risk of undue influence and ensuring that investment decisions are based on regulated and verified information, aligning with SEBI’s mandate to protect investor interests and maintain the integrity of the securities market
Conclusion
Notably, the regulatory response to the impact of media and advertising on IPOs, as articulated by SEBI, reflects a commitment to fostering a transparent and equitable market. The regulations, from those governing traditional advertising to the recent focus on audiovisual disclosures and finfluencer activity, aim to empower investors with accurate information and mitigate the risks of misleading promotions. Recognizing the need to protect investors during IPOs, SEBI’s regulations, as detailed in the ICDR Regulations and subsequent circulars, aim to ensure that all advertising materials adhere to strict guidelines.
To address misleading IPO advertisements by finfluencers, SEBI could implement a structured regulatory approach. This includes formally defining ‘investment recommendations’ on social media, mandating standardized disclosures and risk warnings in finfluencer communications promoting IPOs, and enhancing collaboration with social media platforms for the expeditious identification and removal of detrimental content. Sustained investor education initiatives are also essential to encourage informed investment decisions based on official sources, such as offer documents. Ultimately, enforcement and adaptability will determine whether investor protection can keep pace with the evolving landscape of financial communication.
[1] Sekhar K, Guide to SEBI, Capital Issues, Debentures & Listing, vol 1 (5th edn, Lexis Nexis 2019).
[2] Securities and Exchange Board of India Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, regs 42, 51 read with Sch IX.
[3] Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Sch IX (Public Communications and Publicity Materials).
[4] Ibid
[5] Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, reg 26.
[6] Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, reg 29.
[7] Ibid
[8] Ibid
[9] Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, Sch X read with Companies Act 2013, s 12.
[10] Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, Sch X read with Companies Act 2013, s 30.
[11] Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, reg 25.
[12] Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, Sch IX.
[13] Ibid
[14] CFA Institute, Understanding Finfluencers’ Role in Investment Decisions https://rpc.cfainstitute.org/research/surveys/2025/clicks-and-credibility