Why you should approach the SME IPO market with extreme caution

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Subscribe to enjoy similar stories. SME initial public offerings (IPOs) have been coming thick and fast. According to data from primedatabase, as many as 104 SMEs (small and medium enterprises) have used BSE and the National Stock Exchange’s (NSE) SME platform to raise ₹3,405 crore in FY25 so far.

This figure already surpasses half of the total funds raised by SMEs in FY24. Most of these IPOs are heavily oversubscribed, driven by “heightened momentum in the primary markets and and lot of liquidity floating around," according to Deepak Jasani, head of retail research at HDFC Securities. However, Jasani warns that many SMEs can trade below their issue price within six months to a year after listing.

Read this | What are your chances of making money in the SME segment? Concerns are shared not only by market analysts but also by the Securities and Exchange Board of India (Sebi), which has issued cautionary advisories regarding the frenzied activity in the SME markets. SME platforms on both NSE and BSE were created to help smaller companies raise capital through stock markets. Unlike large firms, SMEs may lack the resources to meet the rigorous compliance and regulatory requirements of a mainboard listing.

Consequently, SME platforms have lower eligibility criteria and fewer disclosure requirements. For instance, a company pursuing a mainboard IPO must have at least ₹15 crore in average operating profit over the last three years. In contrast, an SME IPO requires operating profits in just two of the last three financial years.

The compliance thresholds also differ. Companies listed on the SME platforms are only required to submit half-yearly earnings, while mainboard-listed companies must report quarterly results. Despite the