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Retail Applicants in SME IPOs Surge to 2.3 Lakh
Last Updated: 28th January 2025 - 12:46 pm
The Securities and Exchange Board of India (SEBI), along with the two major stock exchanges—BSE and NSE—has been making significant efforts to tighten regulations for the SME IPO segment. However, this has not deterred a massive influx of retail investors, with their numbers surging more than 600 times over the past four years.
Data indicates that the average number of retail applicants for SME IPOs has exceeded two lakh in the current year, a sharp rise from just a few thousand two years ago.
In 2025, the average number of retail applicants for SME IPOs stands at approximately 2.3 lakh, a significant increase from 29,755 in 2022. This figure grew to 78,450 in 2023 before surpassing one lakh in 2024, reaching 1.88 lakh.
This trend is noteworthy as the SME IPO segment has frequently been in the news, often due to regulatory concerns and investigations regarding disclosure quality and corporate governance.
Additionally, this development comes amid growing calls from market participants for stricter entry barriers to limit retail investor participation, given the higher risk associated with SME IPOs compared to mainboard IPOs.
"An increase of 630 times in just four years highlights the immense interest SME IPOs have generated among retail investors, largely driven by listing gains, which have surged from an average of 1% to 60% over the same period," said Pranav Haldea, Managing Director of PRIME Database Group.
"The significant retail participation in this segment now necessitates greater scrutiny of companies launching IPOs," he added.
Interestingly, NSE and BSE introduced their dedicated SME IPO platforms back in 2012. Initially, the segment saw only a few hundred retail investors participating on average.
A sudden spike occurred in 2017 when the average number of applicants jumped to 8,361, coinciding with 133 SMEs launching their public issues. This marked the first calendar year since the platform’s inception when over 100 SME IPOs entered the market.
However, the surge was short-lived, as the average dropped to 3,222 the following year and further declined to 748 in 2019 before the global COVID-19 crisis led to participation falling below 300.
The real surge began in 2022, coinciding with increased traction in SME IPO subscriptions and listings. Analyzing the top 10 SME IPOs in terms of subscription and listing shows that most took place in either 2023 or 2024.
Regulatory Tightening
In December, SEBI introduced stricter regulations for SME IPOs, allowing only companies with an operating profit in at least two of the past three years to launch public issues. Additionally, firms are now barred from using IPO proceeds to repay loans to promoter entities.
SEBI mandated that only SMEs with an operating profit (earnings before interest, tax, and depreciation) of ₹1 crore from operations in any two of the last three financial years can file a draft red herring prospectus (DRHP).
Among the key regulatory changes, SEBI limited the offer for sale (OFS) component of an IPO to 20% of the total issue size, while restricting selling shareholders from offloading more than 50% of their holdings.
Furthermore, the allocation for General Corporate Purposes in SME IPOs has been capped at 15% of the issue size or ₹10 crore, whichever is lower. IPO draft documents must now be available for public comments for 21 days.
In November last year, SEBI released a discussion paper on revising the SME IPO listing framework, proposing to increase the minimum application size from ₹1 lakh to ₹2 lakh, among other changes.
Additionally, in July last year, NSE imposed a 90% cap over the issue price for SME IPOs on listing day during the special pre-open session.
In March, SEBI Chairperson Madhabi Puri Buch acknowledged detecting "signs of manipulation in the SME segment."
The year 2024 was a landmark year for SME IPO fundraising, with over 225 companies raising more than ₹8,200 crore—a significant rise from ₹4,686 crore in 2023.
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