Stories
SEBI Proposes Major SME IPO Overhaul to Tighten Safeguards
- •SEBI has proposed a sweeping overhaul of the SME IPO landscape through a consultation paper to tighten safeguards for investors without hindering viable businesses.
- •The proposed changes include hiking the average annual operating profit requirement to Rs 3 crore and shifting focus to post-issue market capitalisation.
- •Mandatory 100 percent underwriting and compulsory market making are proposed to be removed to lower fundraising costs for issuers.
- •Experts believe the tighter eligibility criteria and removal of market making will test genuine investor demand and improve overall issuer quality.
Key Questions Answered
SEBI has proposed increasing the average annual operating profit requirement to Rs 3 crore over the previous three years. Alternatively, companies that do not meet this specific threshold can qualify by allocating 75 percent of the offer to qualified institutional buyers.
Removing mandatory underwriting is expected to significantly reduce fundraising costs for issuers, as underwriting fees accounted for a major portion of total issue expenses in FY25 and FY26. However, it may also make it harder for companies to complete a fundraise when investor demand falls short.
SEBI data showed that market makers accounted for between zero and 10 percent of total turnover across hundreds of BSE and NSE SME stocks, indicating that compulsory quotes did not translate into meaningful liquidity. Regulators believe genuine buying and selling interest should drive market activity instead.
