THE WILD RIDE OF SME IPOS: WHAT'S NEXT?

The market for public listings for small and medium enterprises (SMEs) has boomed since covid, fuelled by younger investors with a higher risk appetite, and the growing popularity of digital trading platforms. This surge gave SMEs, which had long struggled with limited funding options, a new avenue for capital.

- BY HOWINDIALIVES.COM

As investor demand and supply of initial public offerings (IPOS) fed off each other, subscriptions zoomed, often followed by big listing gains. Concerns soon emerged that the market was veering into bubble territory, with valuations detached from fundamentals. Following interventions by Securities and Exchange Board of India (Sebi) earlier this year-like mandatory profitability and tighter controls-the market has now entered a new phase.

LISTING SURGE

SINCE 2012, when Sebi introduced a new framework for SMEs to raise funds, the SME IPO market has undergone three broad phases: an early, nascent period, a slowdown, and a sharp post-pandemic acceleration. Activity first peaked in 2018, then contracted in 2019 and 2020 as fundraising crashed in line with the broader risk-off environment. The post-covid period saw both the number of issues and funding value rise rapidly. This is not the first time SMEs have had a platform to raise funds. Earlier attempts, such as OTCEI in 1990 and the INDO NEXT platform in 2005, saw limited traction. This time, Sebi designed it around "light-touch" access, lowering the entry threshold for issuers relative to the mainboard. The broader environment had changed, too. Since their launch, the SME platforms of the BSE and the NSE have both seen over 650 issues. The average IPO size has grown to ₹43.43 crore this year so far, up from 36.50 crore in 2024 and 25.75 crore in 2023.

RETAIL WAVE