Regulatory norms can’t stop SME IPO rush

The SME IPO market in India has been thriving despite regulatory changes implemented by SEBI to tighten regulations. In the past 10 days alone, one IPO has hit the market every day, with an additional four set to open for subscription by the next weekend. This trend indicates a strong start to the new year for SME exchanges, with 14 companies looking to raise a total of ₹557 crore in the first 20 days of January.

In 2024, both BSE SME and NSE Emerge saw significant activity, with 243 SMEs raising a total of ₹9,428 crore compared to 182 companies raising ₹4,967 crore in 2023. This growth highlights the increasing popularity of SME IPOs as a fundraising option for small businesses.

SEBI’s recent amendments to SME IPO regulations aim to protect investors from potentially risky offerings. The new rules require SMEs to demonstrate an operating profit of ₹1 crore in two out of the three financial years preceding the IPO application. Additionally, companies are now prohibited from using IPO funds to repay promoter group loans, with restrictions placed on general corporate expenses.

Industry experts believe that these stricter regulations will enhance the credibility and resilience of the SME segment. Uday Nair, Director at FedEx Securities, stated that the amendments will ensure that only high-quality companies can access the market, ultimately boosting investor confidence and demand.

Despite the regulatory changes, the growth potential for SME-listed companies in India remains strong. Bipin Bhanushali, President-Investment Banking at Marwadi Chandarana Intermediary Brokers’ Investment Firm, noted that there are over 63 million MSMEs in the country, yet only a fraction of them are listed on stock exchanges. This gap presents significant opportunities for SMEs to access capital markets for growth and expansion.

Overall, the robust activity in the SME IPO market reflects investor interest driven by the potential for high returns, especially on listing days. As government policies continue to support SMEs and regulations tighten to weed out risky offerings, the SME IPO market in India is poised for continued growth and success.