Why SME IPOs are having their moment

In 2021-22 the average company listing on one of India’s two SME exchanges raised ₹14 crore. In 2025-26 the average was ₹43 crore, and 254 companies between them raised ₹10,944 crore, more than in any earlier year.¹ Those are the numbers people have in mind when they say SME IPOs are having their moment. They are accurate. They are also the least useful part of the story for a founder deciding whether to list.

The more useful facts are what happened to the investors who bought those shares, what the regulator found when it looked closely, and how the rules changed as a result. Taken together they describe a market that has stopped rewarding a company for getting an issue away and has started asking whether the company deserved to be listed at all. For a well-run business with ₹50–100 crore of revenue, that is a better market to walk into than the one that made the headlines.

What the boom concealed

The 2024 peak is worth remembering in detail, because the rules now in force were written in response to it. By SEBI’s count, 1,089 companies had listed on the SME platforms by October 2024, and 322 of them had moved up to the main board.⁵ The segment had a real record. It also had a growing problem.

In August 2024 a vehicle dealership with two showrooms and eight employees raised ₹12 crore in an issue that was subscribed 419 times.⁶ The next day SEBI issued a public warning that some SME companies and their promoters were presenting an unrealistic picture of their operations once listed, to attract investors.⁷ Weeks later Trafiksol ITS Technologies raised ₹44.87 crore in an issue subscribed 345 times. Its listing was put on hold a day before it was due, after questions about a ₹17.70 crore software purchase from a vendor, and in December SEBI directed the company to return the money to investors.⁸

The SEBI investigations that followed were more damaging than any single case. In one interim order, ₹19 crore of an IPO’s proceeds had gone out as “issue expenses”, against ₹80 lakh disclosed in the prospectus: more than half of the fresh money raised.⁹ Reuters reported that some SME merchant bankers were found to have charged fees equal to 15% of the issue size, where 1–3% is the norm for Indian IPOs.¹⁰ And SEBI’s own board paper recorded that some listed SMEs had diverted IPO and rights-issue money to related parties or to shell companies controlled by their promoters, and booked circular sales between connected parties to manufacture a growth story.⁵

None of this describes the typical SME issuer. It does describe what a careful investor now assumes they might be looking at, until the company shows otherwise.

The rules that came out of it

SEBI’s board approved a revised SME framework on 18 December 2024, and the amended regulations were notified on 3 March 2025.^11,12 They apply to draft offer documents filed after that date. The main changes are these:

The exchanges added their own tests. Since September 2024, NSE has required an SME applicant to show positive free cash flow to equity in at least two of the three previous years: operating cash flow, less capital spending, plus net borrowing, less post-tax interest.¹³ In April 2026 it widened the sum to count money raised by issuing shares as well.¹⁴ Either way it is a harder test than an EBITDA line, because cash flow from operations is where a business with a receivables problem shows it.

The market has already changed its mind

Investors did not wait for the regulations to work. In 2025-26 the average SME issue was subscribed 57 times, down from 174 the year before, and the average listing-day gain fell from 46% to 11%. By 27 March 2026, only 77 of the year’s 249 listed SME issues were trading above their issue price, and the average return was minus 7%.¹ Part of that was the wider market: main-board IPOs had a poor year too, with an average listing gain of 8%.¹

The first half of 2026-27 suggests sorting rather than retreat. Fewer companies listed, but the average issue held at ₹44 crore, and by 29 September 2026 55 of 109 listed issues were above their offer price, with an average return of 17%.⁴ The money is still there. It is choosier about where it goes.

The boom rewarded promoters who could get an issue away. The rules written in response reward companies that would have deserved a listing anyway.

What the new rules mean for a ₹50–100 crore company

The ₹1 crore profit test will not trouble a sound business at this size; it exists to keep out companies that should never have filed. The rules that will shape a genuine founder’s plans are the others.

• An SME IPO is not an exit. Existing shareholders can sell at most 20% of the issue, and no one can sell more than half of what they hold. A listing raises growth capital and creates a market for your shares. It does not cash you out.
• The money must have a stated use. With general corporate purposes capped, the prospectus has to name where the rest goes: a plant, a line, working capital with a calculation behind it. If you cannot yet say what you would do with ₹25 crore, you are not ready to ask for it.
• Family money in the business has to be settled first. Loans from promoters and their companies cannot be repaid out of the issue. Convert them, repay them from operations, or live with them after listing.
• Related-party dealings become public and need approval. A business that buys from or sells to a relative’s company will find those transactions measured against a threshold of 10% of turnover, disclosed, and put to shareholders.
• The structure must be in place a year ahead. A business that converts from a partnership, LLP or proprietorship must have existed as a company for a full financial year before it files, and a company whose promoters change must wait a year.¹²
• Competitors will read your draft. Twenty-one days of public comment means your customer concentration, margins and litigation are in the open before you have raised a rupee.

When an SME IPO is the wrong answer

A listing is a permanent change in how a company is run. Results are published every half year, a market maker has to be appointed, related-party dealings go to shareholders, and the share price becomes something customers, lenders and employees can see. It is the right trade for some businesses at this size and the wrong one for many.

It is usually the wrong answer when:

• what the promoter really wants is liquidity for themselves;
• the business has met the profit test for only two years, and cash flow is weaker than profit;
• the accounts are entangled with family companies that cannot be cleaned up within a year;
• the amount needed is small enough that a bank, an NBFC or a private investor would provide it with less disclosure; or
• the founder is not ready to answer questions in public about customers, margins and pending cases.

For a company that clears those hurdles, the SME platform can be a first step rather than a destination. NSE’s rules for moving up to the main board, in force since May 2025, ask for revenue above ₹100 crore, net worth of at least ₹75 crore, an average market value of at least ₹100 crore and at least 500 public shareholders, among other tests.¹⁵ A company at ₹60 crore of revenue today that lists well and grows can plausibly meet them within a few years.

A readiness check you can run this quarter

1. Three years of audited accounts, with EBITDA above ₹1 crore in at least two of them, and an auditor you would be comfortable seeing named in a prospectus.
2. Positive free cash flow to equity in two of the last three years, calculated the way the exchange calculates it.
3. A list of every transaction with a related party in the last three years, and a decision on each.
4. A use of funds you could defend line by line, with general corporate purposes under 15%.
5. Promoter and group loans either converted or on a schedule to be repaid from operations.
6. A company structure, and a promoter group, that will have been in place for at least a full financial year when you file.
7. A board with independent directors who would ask hard questions, appointed before the bankers arrive.

If the honest answer to most of these is yes, the market of 2026 is better for you than the market of 2024 was. Valuations are no longer set by retail applications oversubscribed hundreds of times, which means a good company is less likely to be priced alongside a bad one. If the answer to most of them is no, the useful work is the same whether or not you eventually list: those seven items are also what a private equity fund, a bank’s credit committee and any serious buyer will ask about.

So the question is not whether SME IPOs are having their moment. They are. The question is whether your company would still look like a good listing in a year when the average first-day gain is 11%.

This article is general information for founders, written from public sources listed below. It is not investment, legal or tax advice. Figures are as published by each source on the date shown.