SME IPO surged in FY24 and FY25 on strong retail participation

The SME IPO market in India saw a sharp surge in activity during FY 2023-24 and FY 2024-25, supported by strong retail participation, and favourable market sentiment, the RBI said in a study released in its October Bulletin. During most of this time, SME IPOs recorded high oversubscription levels and listing gains.

Macroeconomic and policy factors like overall market buoyancy, and advancement in payment and settlement mechanism in the IPO market drove this boom.

Most IPO proceeds were used for capital enhancement or working capital purpose by the SMEs. Despite robust listing gain, post-listing performances of these SME stocks reveal both opportunities and risks for the investors.

SME IPOs may offer impressive gains in favourable conditions but carry higher volatility and risk during downturns, making due diligence indispensable. Investors should carefully evaluate the company's fundamentals, growth prospects, and risk factors before committing capital.

Given the strong growth of start-ups in India, most of which have innovative business models, the provision of risk capital for these firms becomes crucial.

Keeping in view the spurt of SME IPOs in recent months and the associated challenges from the perspective of investor protection, SEBI in consultation with NSE, BSE and merchant bankers, had initiated the review of the IPO framework for the SME segment.

These measures aim to reduce information asymmetry and regulatory arbitrage, ensure proper utilisation of IPO proceeds, prevent market manipulation, and protect retail investors. The reforms are expected to foster transparency and stability in the SME IPO segment going forward.

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