SEBI’s proposal to cut the minimum SME IPO application size could widen access just as speculative retail interest is surging, weakening the risk filter these platforms were designed to provide.
The Securities and Exchange Board of India’s latest rethink of the SME listings framework risks missing the point of these platforms altogether. When the Bombay Stock Exchange and the National Stock Exchange created SME segments in 2012, the objective was straightforward: help smaller companies raise capital while keeping a tighter gate around retail participation because these offerings are inherently riskier than mainboard issues. The regulator’s new consultation paper appears to reverse that balance by making it easier for small investors to enter, even as the market has already shown signs of speculative excess.
That concern is not abstract. Since the SME platforms were launched, 1,496 companies have listed and raised ₹40,222 crore, according to the figures cited in the editorial. Nearly 90 per cent of that money has come in since 2023, a period in which retail interest rose sharply, drawn by eye-catching listing gains. SEBI itself tightened the rules in March 2025, raising the minimum application size for SME initial public offerings from ₹1 lakh to ₹2 lakh and saying it wanted to limit participation by smaller retail investors because of the higher risks involved. The new consultation paper would now cut that threshold back to ₹1 lakh and reduce trading lots to a single share, which would make the market easier to enter but also potentially more frenetic.
The paper argues that investor access can be widened if issuer standards are strengthened, but that trade-off is not cost-free. It proposes lifting the average operating profit requirement to ₹3 crore a year over the previous three financial years, up from the current test of ₹1 crore in two of the preceding three years. It also wants the minimum number of allottees in an SME IPO raised from 200 to 500. Business Standard reported that the regulator is also looking at market-capitalisation-based eligibility rather than the present paid-up-capital test, alongside a higher bar for larger issues and other procedural changes. Those may improve structure and discipline, but they could also make it harder for genuinely small firms to access public money at a time when many are seeking to avoid rising borrowing costs.
There are parts of the proposal that look sensible. A cap tied to post-issue market capitalisation, rather than paid-up capital alone, would better reflect a company’s true scale, and a separate framework for offers for sale in SME IPOs is a useful refinement. But the broader instinct to stimulate more trading on SME platforms seems misplaced. These markets were designed for small issuers, not for mass retail speculation. If anything, minimum application sizes and trading lots should rise over time to keep pace with inflation and preserve the original risk filter. SEBI is right to strengthen protections, but wrong to assume that greater retail activity is the goal.
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