SME IPO Boom: Risks and SEBI’s Tighter Norms
Why in the news
Retail enthusiasm drove strong fundraising in the SME IPO segment, but prices have recently corrected sharply, prompting concern about risks and tighter rules.
Key facts
| Indicator | Figure |
|---|---|
| Retail applications per SME IPO | 297 (2020) to 188,000 (2024) |
| Listing gains | about 1% to 60% over the same span |
| BSE SME IPO index, 2024 | up 2.5 times; BSE IPO index for mainboard up 32% |
| Recent year-to-date move | SME index down 26%; mainboard index down 19% |
Concerns
- SME stocks are riskier and illiquid, a problem for small retail investors who may not grasp the risks.
- Pranav Haldea of Prime Database called them extremely volatile and expects fewer issues unless sentiment recovers.
SEBI’s tighter framework
- Profitability: operating profit of at least ₹1 crore in the last two to three financial years.
- OFS cap: selling shareholders’ offer-for-sale limited to 20% of issue size; each selling holder may sell at most 50% of their holding.
Ticket size
- Minimum application is ₹1 lakh, originally meant to discourage retail participation.
- Rising incomes mean many now invest without fully understanding the risks.
- Ambareesh Baliga suggests raising the minimum to ₹2 lakh.
Outlook
Tighter regulation and volatility could slow issuances until sentiment and investor awareness improve.
Exam angle
- Terms: SME IPO, OFS, BSE SME IPO index.
- Regulator: SEBI. Current minimum application: ₹1 lakh.