SME IPOs: Sebi mulls regulatory reset; will this boost investor confidence?

SME IPO: Market regulator Securities and Exchange Board of India (Sebi) is planning to review the regulatory framework for small and medium enterprises (SMEs) IPOs to protect investor interests. Recently, Sebi chairman Tuhin Kanta Pandey said that the regulator will do a comprehensive review of the framework governing SME listings through a consultation paper.

 

Notably, the regulator has flagged difficulties related to trading, market making, underwriting and costs faced by companies, among others, on the SME platform.

 

"There are certain things about the SME framework which are actually curbing the organisations and enterprises that are on the SME platform. They are curbing their growth, and there are difficulties in their trading as well," Pandey said. READ MORE

 

 

"We will bring a comprehensive reform proposal. A consultation paper will be issued for that," the Sebi chairman had said.

 

SME listing framework which Sebi may revisit includes: 

 

- Review of trading lot sizes as odd lots are making SME shares difficult to trade.

 

- Reconsider higher trading lots/application sizes. Pandey acknowledged that such measures aimed at controlling retail participation didn't deliver the intended outcome.

 

- Revamp the market-making framework.

 

- Review underwriting requirements for SME IPOs.

 

- Review migration rules for SMEs shifting from the SME platform to the mainboard.

 

- Reconsider paid-up capital requirements linked to SME listings 

 

Analysts call for bold reforms  Analysts said that Sebi's latest move follows a rise in SME issues, which has driven significant investor participation. As more SMEs tap the markets and retail investors participate, bold reforms are needed to encourage the listing of a lot of SMEs in India.

 

As per data, MSMEs and SMEs account for nearly one-third of GDP, but they represent just 0.2 per cent of the country's overall equity market cap. 125 SME IPOs listed in 2026 so far  According to Prime Database, 240 SME IPOs raised ₹240 crore in 2024. The number rose to 267 in 2025, with these companies raising a cumulative ₹11,455 crore. So far in 2026, 125 SME IPOs have debuted, raising around ₹5,724 crore.

 

G Chokkalingam, founder and head of research at Equinomics Research, said that reform is needed, especially in the area of improving liquidity and also expanding retail floats of SMEs listed on the stock exchanges so that their market prices are determined more by fundamentals than by low retail floats. 

 

"This would reduce risk for retail investors and thereby encourage more retail participation in SME stocks," he said.

 

VK Vijayakumar, Chief Investment Strategist, Geojit Investments, said that the regulation of the SME market ecosystem has been deficient compared to the mainboard market and an overhaul will only have a positive fallout.

 

"The listing costs are high; liquidity is an issue due to poor market making; and the odd lot issue has been hanging fire. SEBI’s proposed overhauling initiatives are likely to address these issues. This will help improve the sentiments in the SME market,"  he said. 

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