SME platforms on the Bombay Stock Exchange and the National Stock Exchange were launched in 2012 to give smaller companies an opportunity to tap the capital market. The compliance burden on these issuers was lowered; at the same time investment thresholds were introduced to dissuade smaller investors from participating in these risky issuances. A SEBI consultation paper has now sought to alter the regulatory mix here. It favours lower entry barriers for investors and raising the bar for issuers, aligning these with mainboard IPOs in several aspects.
The former is surprising, in view of the increased speculative activity in SME IPOs over the last four years. While 1,496 companies have listed on SME platforms since inception, raising ₹40,222 crore, almost 90 per cent of the funds have been raised since 2023. Retail investors increased their participation on SME platforms in recent times, attracted by large listing gains. In March 2025, SEBI increased the minimum application size for SME IPOs from ₹1 lakh to ₹2 lakh, stating that it wanted to ‘limit participation by smaller retail investors in view of the higher risks associated with SME investments.’ The consultation paper is, however, doing a volte face, suggesting that the minimum application should once again be reduced to ₹1 lakh to improve participation. It also says that the trading lot of SME stocks should be reduced to a single share, instead of the current price-based lot sizes, ranging typically between ₹1-1.6 lakh. By lowering the minimum capital and lot size, the regulator wants to increase trading activity on SME stocks.
Investor relaxations are being justified on the ground that rules governing SME stocks will be tightened to protect investors. The paper says that companies making SME issuance should have at least ₹3 crore per year as the minimum average operating profit for the preceding three financial years; up from the requirement to show ₹1 crore operating profit in two of the preceding three financial years. It is of the view that the minimum number of allottees in an SME IPO must be increased from 200 to 500. Small and medium enterprises which try to raise funds from markets to save on rising interest costs may find it hard to meet these higher thresholds.
The consultation paper seeks to alter the basic nature of the SME platforms — so far meant for small issuers rather than small investors. Given that the number of issuances as well as funds raised continue to be robust in 2026, trying to increase activity on these platforms appears unnecessary. Minimum IPO application size and trading lot should ideally be increased to adjust for inflation. However, the suggestion to link listing to post-issue market capitalisation thresholds (mainboard listing for over ₹4,000 crore m-cap) and not the post-issue paid-up capital is a good one. A separate framework for offer for sale in SME IPOs is a welcome step as well. But overall, the new regulatory approach deserves a relook.
Published on October 26, 2026
