SME IPO in India

An SME IPO is an initial public offer of equity shares by a small or medium enterprise whose shares list on an SME exchange, NSE Emerge of the National Stock Exchange or BSE SME of BSE , under Chapter IX of the SEBI (ICDR) Regulations 2018 . It is open to issuers with post-issue paid-up capital of up to Rs 25 crore, and SEBI issues no observations on its offer document.

The SME route differs from a main-board initial public offering in four ways an investor meets directly. The minimum bid is two lots and more than Rs 2 lakh (ICDR Regulation 267(2)), against Rs 10,000 to Rs 15,000 on the main board. The SME exchange, not SEBI, vets the draft offer document (Regulation 246(2)). The issue must be fully underwritten (Regulation 260) and the shares carry compulsory market making for three years after listing (Regulation 261). And the listed company files financial results half-yearly rather than quarterly (LODR Regulation 33(5)).

SEBI rewrote the segment through the ICDR (Amendment) Regulations 2025, effective 8 March 2025, after its board meeting of 18 December 2024 (press release 36/2024). The amendment added a Rs 1 crore operating-profit test, capped offers for sale at 20 per cent of the issue, doubled the minimum application, raised the minimum number of allottees from 50 to 200, and opened every draft offer document to 21 days of public comment. SEBI’s board memo for that meeting gave the reason: proceeds diverted to promoter-linked entities and revenue inflated through circular transactions. A further SEBI consultation paper of 14 October 2026 proposes moving to a market-capitalisation test, a Rs 1 lakh minimum application and the end of compulsory underwriting and market making; those proposals are open for comment until 4 November 2026 and are not in force.

The segment is now the majority of Indian IPOs by count. SEBI’s Annual Report 2025-26 records 257 SME listings among 366 IPOs in FY2025-26. This article covers eligibility, offer structure, the minimum application, allocation and allotment, underwriting, market making, lock-in, post-listing obligations, migration to the main board, market data, enforcement, tax and the grievance route, with the regulation number for each rule.

Regulatory framework and the SME exchanges

An SME IPO is governed by Chapter IX of the SEBI (Issue of Capital and Disclosure Requirements) Regulations 2018, Regulations 227 to 280, and every listed SME company by the SEBI (LODR) Regulations 2015 with the SME carve-outs in Regulations 15(2) and 33(5). ICDR Regulation 2(1)(ddd) defines an “SME exchange” as a trading platform of a recognised stock exchange with nationwide trading terminals, permitted by SEBI to list securities issued under Chapter IX, and expressly excludes the main board.

SEBI prescribed the SME exchange framework in May 2010, according to the board memo placed before its 18 December 2024 meeting, and the platforms began operating in 2012 (SEBI press release 18/2024 of 28 August 2024). Two platforms exist:

Source: SEBI consultation paper on review of the SME segment framework, 19 November 2024, paragraphs 9 and 10. “Listings since inception” counts companies listed exclusively on the platform.

SEBI does not review an SME offer document (Regulation 246(2)); the lead manager files the draft with the SME exchange, which grants in-principle approval. Track-record conditions are partly delegated: Regulation 229(3) lets an issuer list only if it meets the “track record and/or other eligibility conditions” of the SME exchange chosen. And the Innovators Growth Platform sits in a separate chapter of the ICDR Regulations (Chapter X), with its own eligibility rules, so it is not part of the SME route.

Issuer eligibility

An issuer qualifies for an SME IPO only if it clears the exclusions in ICDR Regulation 228, the size and profit tests in Regulation 229, and the chosen SME exchange’s own criteria. The conditions apply on the date the draft offer document is filed with the SME exchange and again on the date the offer document is filed with the Registrar of Companies (Regulation 227).

Source: SEBI (ICDR) Regulations 2018, consolidated to 21 March 2026.

The Rs 1 crore EBITDA test is a compromise. SEBI’s 19 November 2024 consultation paper proposed Rs 3 crore of operating profit in two of three years; the board approved Rs 1 crore on 18 December 2024. A partnership or LLP’s track record counts only if its accounts are recast into the Schedule III format of the Companies Act 2013 and certified by an auditor holding a valid ICAI peer-review certificate (proviso to Regulation 229(3)).

NSE Emerge criteria

NSE Emerge adds conditions of its own under Regulation 229(3). Its revised criteria, issued by NSE circular NSE/CML/65739 of 23 December 2024 after SEBI’s board decision of 18 December 2024, require:

• a track record of at least three years for the applicant, or for promoters holding at least 20 per cent of post-issue equity with three years in the same line of business, or for a converted proprietary or partnership firm;
• EBITDA of Rs 1 crore from operations in any two of the three previous financial years, and positive net worth;
• positive free cash flow to equity (FCFE) in at least two of the three financial years before the application;
• no admitted winding-up petition and no proceedings under the Insolvency and Bankruptcy Code;
• no material regulatory or disciplinary action against the company, promoters or directors in the previous three years;
• a cooling-off period of six complete months after a rejected application.

The FCFE test came first, by NSE circular NSE/SME/63532 of 22 August 2024, for draft offer documents filed on or after 1 September 2024. NSE defines FCFE as cash flow from operations, less net purchase of fixed assets, plus net borrowings, less interest net of tax, taken from audited statements only. The circular’s own example gives Rs 26 crore operating cash flow, Rs 19 crore capital expenditure, Rs 12.4 crore of new long-term loans, Rs 7.3 crore repaid, a Rs 2.7 crore fall in cash credit and Rs 4 crore post-tax interest, for an FCFE of Rs 5.4 crore.

BSE SME criteria

BSE SME’s criteria, as SEBI reproduced them in Annexure A of its consultation paper of 19 November 2024, require post-issue paid-up capital of not more than Rs 25 crore, net worth of at least Rs 1 crore in each of the two preceding full financial years, net tangible assets of Rs 3 crore in the last full financial year, a three-year track record (or a project appraised and funded by NABARD, SIDBI, a bank other than a co-operative bank or a financial institution), EBITDA from operations in two of the three latest years, and a leverage ratio of not more than 3:1. The ICDR Rs 1 crore EBITDA test in Regulation 229(6) applies on top of these on both exchanges from 8 March 2025.

Objects of the issue and offer-for-sale limits

The ICDR (Amendment) Regulations 2025 tied SME issues to fresh capital. Since 8 March 2025, the offer for sale component may not exceed 20 per cent of the total issue size (Regulation 230(1)(f)), and no selling shareholder may sell more than 50 per cent of its pre-issue holding on a fully diluted basis (Regulation 230(1)(g)). SEBI’s November 2024 consultation paper counted two pure offer-for-sale SME IPOs in FY2023-24 and one in FY2024-25 to October 2024, and 30 issues in those two years in which the offer for sale exceeded 20 per cent.

Regulation 230 limits what the fresh money may fund:

• General corporate purposes: at most 15 per cent of the amount raised or Rs 10 crore, whichever is lower (Regulation 230(2), from 8 March 2025; the earlier cap was 25 per cent).
• Unidentified acquisitions: general corporate purposes plus acquisitions or investments without an identified target may not together exceed 35 per cent, and the unidentified acquisitions alone not more than 25 per cent (Regulation 230(3)).
• Promoter loans: the objects may not include repaying a loan from a promoter, the promoter group or any related party, directly or indirectly (Regulation 230(1)(h)).

The promoter-loan ban targets the pattern SEBI’s board memo of December 2024 described: issue money routed back to promoter-controlled entities. Only the fresh issue reaches the company; offer-for-sale proceeds go to the selling shareholders.

Offer document, public comment and disclosure

An SME issuer files its draft offer document with the SME exchange, through a SEBI-registered merchant banker acting as lead manager, and SEBI issues no observation on it (ICDR Regulation 246(2)). Since 8 March 2025, the draft must stay open for public comment for at least 21 days on the websites of the issuer, the SME exchange and the lead manager, and the issuer must announce the filing within two working days in an English national daily, a Hindi national daily and a regional-language daily (Regulation 247(1) and (2)). After the comment period, the lead manager files the comments received and the resulting changes with the SME exchange (Regulation 247(3)).

The disclosure standard is the full Part A of Schedule VI (Regulation 245(2)(b)), the same schedule a main-board red herring prospectus follows, with SME-specific additions since 8 March 2025 under Regulation 245(2)(c) to (e):

1. Employees’ Provident Fund and ESIC details, such as employees registered and amounts paid.
2. A site visit report on the issuer by the lead manager, available for inspection as a material document.
3. The lead manager’s fees in any form.

The lead manager submits a due-diligence certificate in Form A of Schedule V, with the site visit report annexed, to the SME exchange with the draft (Regulation 246(3)). From 21 March 2026 a draft abridged prospectus goes with it, and every application form must carry a QR code linking to the RHP, the abridged prospectus and the price band advertisement (Regulation 255(2)). Financial information in the offer document may not be more than six months old at issue opening (Regulation 245(5)).

Promoter contribution and lock-in

The promoters of an SME issuer must hold at least 20 per cent of post-issue capital, and that minimum contribution is locked in for three years from allotment or from commencement of commercial production, whichever is later (ICDR Regulations 236(1) and 238(a)). Shortfalls of up to 10 per cent of post-issue capital may be met by AIFs, foreign venture capital investors, scheduled commercial banks, public financial institutions, IRDAI-registered insurers, any non-individual public shareholder holding at least 5 per cent, or promoter-group entities, without these being identified as promoters.

Source: SEBI (ICDR) Regulations 2018, Regulations 236, 238 and 239, as amended effective 8 March 2025.

SEBI’s board memo for 18 December 2024 recorded that promoter holdings in SME companies fell immediately after the one-year lock-in ended, which is why half of the excess holding is now locked for two years. Shares bought at below the issue price in the preceding year, or received as bonus from revaluation reserves in the preceding three years, cannot count towards the minimum contribution (Regulation 237).

Underwriting and market making

Every SME IPO must be underwritten for 100 per cent of the offer, not just the minimum subscription, and the lead managers must underwrite at least 15 per cent of the issue size on their own account (ICDR Regulation 260(1) and (2)). The underwriters are SEBI-registered merchant bankers or stock brokers, and the lead manager files an undertaking that the issue is fully underwritten one day before it opens (Regulation 260(4)). If an underwriter or nominated investor defaults, the lead manager must take up the shortfall itself (Regulation 260(5)).

Market making is compulsory for at least three years from listing, through stock brokers of the SME exchange appointed by the issuer (Regulation 261(1)). The ICDR text fixes four conditions:

• On the allotment date, the market maker’s inventory must be at least 5 per cent of the shares proposed to be listed (Regulation 261(4)).
• The market maker must buy a shareholder’s entire holding in one lot if it is worth less than the minimum trading lot, and may not sell in lots smaller than that minimum (Regulation 261(5)).
• It may not buy shares from promoters, the promoter group or anyone who acquired shares from them during the compulsory period (Regulation 261(6)).
• Promoter holdings cannot be offered to the market maker during that period (Regulation 261(7)).

SEBI’s operating rules for SME market makers sit in its Master Circular for Stock Exchanges and Clearing Corporations, SEBI/HO/MRD-PoD2/CIR/P/2024/00181 of 30 December 2024, Chapter 1, paragraphs 5.2 and 5.3, which carry forward circulars of 26 April 2010 and 27 November 2012:

Source: SEBI Master Circular SEBI/HO/MRD-PoD2/CIR/P/2024/00181, 30 December 2024, Chapter 1, paragraphs 5.2.3 and 5.3.1.

A market maker whose inventory reaches the ceiling may quote only on the sell side until its holding falls to one percentage point below the ceiling. The circular grants no corresponding exemption at the lower end of the inventory range (paragraph 5.3.1.8).

The details of the market-making arrangement, including the market maker’s name, must be disclosed in the offer document (Regulation 261(3)). After three years, trading depends on ordinary order flow; SEBI’s consultation paper of 19 November 2024 counted 15 NSE Emerge and 35 BSE SME companies with no trade in the month to 15 October 2024, most of them suspended.

Investor categories and allocation

The net offer of a book-built SME IPO is split three ways by ICDR Regulation 253(1). Since 8 March 2025 the category that the main board calls “retail” is defined as individual investors who apply for the minimum application size. With the Rs 2 lakh floor, every SME bid exceeds the main-board retail ceiling.

Source: SEBI (ICDR) Regulations 2018, Regulation 253(1) and (2), as amended effective 8 March 2025.

The non-institutional portion is split further (Regulation 253(2)): one third for bids of more than two lots up to Rs 10 lakh, and two thirds for bids above Rs 10 lakh, with unsubscribed shares moving between the two. Before 2025 the SME non-institutional category was allotted purely proportionately; SEBI aligned it with the main-board method after finding, for main-board issues, that applications above Rs 1 crore in the NII category fell from about 626 per IPO in April 2021 to March 2022 to 20 per IPO in April 2022 to December 2023, once small HNI bids received a minimum allotment (board memo, 18 December 2024, Annexure III).

In a fixed-price SME issue, at least 50 per cent goes to individuals applying for the minimum application size and the rest to other applicants (Regulation 253(3)). Issuers may also reserve up to 5 per cent of post-issue capital for employees, with allotment per employee up to Rs 2 lakh (Rs 5 lakh after spill-over), and up to 10 per cent of the issue for shareholders of listed subsidiaries or promoter companies (Regulation 254(2)).

Anchor investors in SME issues

An anchor investor in an SME issue is a QIB applying for at least Rs 2 crore, against Rs 10 crore on the main board (ICDR Regulation 2(1)(c)). Schedule XIII limits the number of anchors: at most two for an anchor allocation up to Rs 2 crore, between two and 15 for allocations above Rs 2 crore and up to Rs 25 crore with at least Rs 1 crore each, and above Rs 25 crore a further 10 anchors for every additional Rs 25 crore. Anchors bid one working day before the issue opens.

Minimum application and lot size

The minimum application in an SME IPO is two lots, and the amount must be above Rs 2 lakh (ICDR Regulation 267(2), as amended effective 8 March 2025); applications must be in multiples of one lot (Regulation 267(3)). Before 8 March 2025 the minimum was Rs 1 lakh. Lot sizes follow SEBI’s circular of 21 February 2012 on standardised lot size for SME exchanges, under which one lot was worth between Rs 1,00,100 and Rs 1,60,000 depending on the issue price, according to SEBI’s December 2024 board memo.

The worked example in Schedule XIV, Part A2 of the ICDR Regulations shows the arithmetic at an issue price of Rs 20 and a lot of 6,000 shares:

Individual-investor row derived by webnotes.in from the Schedule XIV lot of 6,000 shares and Regulation 267(2).

SEBI justified the higher floor in Annexure III of its board memo: the Rs 1 lakh minimum “was prescribed in SEBI Regulations over 14 years ago”, during which the Nifty and Sensex grew about 4.5 times. Of 99 public comments on the proposal, 74 agreed or strongly agreed. Because a bid of two lots or more is above Rs 2 lakh, it exceeds the Rs 2 lakh retail ceiling of the main board. Bids are placed through UPI ASBA or bank ASBA , as ASBA is the only route the ICDR Regulations allow (Regulation 256).

Allotment

An SME issue cannot allot shares at all if it has fewer than 200 allottees (ICDR Regulation 268(1), raised from 50 effective 8 March 2025). SEBI’s consultation paper of November 2024 compared this with the 1,000-allottee minimum on the main board and reported that the ratio of applicants to allotted investors in SME issues rose from 4 times in FY2021-22 to 46 times in FY2022-23 and 245 times in FY2023-24.

Allotment differs by category:

• Individual investors all apply for the same two-lot size, so they are excluded from proportionate allotment (Regulation 268(3)). Schedule XIV, Part A applies, with “retail individual investors” read as individuals applying for the minimum application size: if the category is oversubscribed, successful applicants are picked by draw of lots and each receives the minimum application size.
• Non-institutional investors each receive the NII minimum application size first, subject to availability, chosen by lottery if shares fall short, and any balance proportionately (Regulation 268(3A), Schedule XIV Part A2).
• QIBs other than anchors receive shares proportionately within the category (Regulation 268(3)).

The registrar to the issue finalises the basis of allotment with the lead manager and an authorised employee of the designated SME exchange. Allotment may exceed the shares offered only for rounding, by up to 10 per cent of the net offer, to make allotments in minimum lots (Regulation 268(2)). Allotment status can be checked on the registrar’s website or on NSE and BSE .

Issue timetable and listing

An SME issue opens at least three working days after the offer document is filed with the Registrar of Companies (ICDR Regulation 265) and stays open for at least three and at most ten working days (Regulation 266(1)). A price-band revision extends bidding by at least three working days, and a force majeure or banking strike by at least one (Regulation 266(2) and (3)). Bids are accepted only through ASBA (Regulation 256).

Listing follows the T+3 timetable of SEBI circular SEBI/HO/CFD/TPD1/CIR/P/2023/140 of 9 August 2023, mandatory for issues opening on or after 1 December 2023: allotment and refunds by T+2 and listing on T+3, where T is the issue closing date. If allotment or unblocking is late, the issuer pays interest at 15 per cent a year (Regulation 269(3)); if the SME exchange refuses listing, the money must be refunded within four days, with 15 per cent interest after that (Regulation 272(2)). The IPO listing day page covers the pre-open session.

Listing-day price cap

On listing day, an SME IPO’s opening price is discovered in the special pre-open session, and on NSE Emerge that price cannot exceed 90 per cent above the issue price. NSE introduced the cap by circular NSE/SME/62757 of 4 July 2024, with immediate effect, “to standardize the opening price discovery/ equilibrium price across exchanges”, and applied it only to the SME segment, not to main-board IPOs, relisted securities or public debt. An SME share issued at Rs 100 can therefore open at no more than Rs 190 on NSE Emerge.

After the pre-open call auction, an IPO with an issue size of up to Rs 250 crore trades on its first day within a price band of 5 per cent of the equilibrium price (or of the issue price if no equilibrium price is discovered), and in the trade-for-trade segment for the first 10 trading days, under paragraph 2.6.2 of SEBI’s Master Circular SEBI/HO/MRD-PoD2/CIR/P/2024/00181 of 30 December 2024. In the trade-for-trade segment every trade must be settled by delivery, so shares bought cannot be sold the same day.

Monitoring of issue proceeds

If the fresh issue in an SME IPO exceeds Rs 50 crore, the issuer must appoint a SEBI-registered credit rating agency to monitor how the proceeds are used, report quarterly until all the money is spent, and publish each report within 45 days of the quarter end (ICDR Regulation 262(1) to (4)). The Rs 50 crore threshold applies from 8 March 2025; it was Rs 100 crore before.

An issuer below the Rs 50 crore threshold files a statutory auditor’s certificate on use of proceeds with the SME exchange along with its financial results until the proceeds are fully used (Regulation 262(5)). Where working capital is an object and more than Rs 5 crore is raised for it, a further auditor’s certificate must show that the money was used in the format disclosed in the offer document (Regulation 262(6)).

Post-listing obligations under LODR

A company listed on an SME exchange files financial results half-yearly, not quarterly, and does not file year-to-date results (SEBI LODR Regulation 33(5)). Regulation 32(8) applies the same half-yearly reading to the statement of deviation in use of issue proceeds.

LODR Regulation 15(2)(b) exempts SME-listed companies from the corporate governance provisions of Regulations 17 to 27, which cover board composition, the audit and nomination committees and related-party approvals, along with clauses (b) to (i) and (t) of Regulation 46(2) and Paras C, D and E of Schedule V. One exception was added: from 1 April 2025, Regulation 23 on related-party transactions applies to an SME-listed company whose paid-up equity capital exceeds Rs 10 crore or whose net worth exceeds Rs 25 crore on the last day of the previous financial year. SEBI’s board memo of December 2024 found that one in two SME-listed companies had related-party transactions above 10 per cent of annual consolidated turnover.

Preferential issues are the most common route for raising more money after an SME listing. SEBI’s November 2024 consultation paper counted 97 preferential issues raising Rs 1,227 crore on NSE Emerge and 72 raising Rs 822 crore on BSE SME between FY2021-22 and 15 October 2024, with 61 bonus issues on NSE Emerge and 37 on BSE SME in the same period. Its investor advisory of 28 August 2024 named announcements followed by bonus issues, stock splits and preferential allotments as the setting in which some promoters sold “at elevated prices”.

Migration between the SME platform and the main board

An SME-listed company whose post-issue paid-up capital is more than Rs 10 crore and up to Rs 25 crore may migrate to the main board under ICDR Regulation 277 if two conditions hold:

1. It meets the main-board listing criteria of the exchange.
2. Shareholders pass a special resolution by postal ballot in which non-promoter votes in favour are at least twice the non-promoter votes against.

The reverse route exists. A main-board company with post-issue paid-up capital below Rs 25 crore may move to an SME exchange on the same voting condition, if it meets the SME exchange’s listing criteria (Regulation 276), and a listed company that makes a new issue under Chapter IX must migrate its existing listing to the SME exchange (Regulation 275). After migration from the main board, compulsory market making again runs for three years (Regulation 261(1)).

SEBI’s consultation paper of 19 November 2024 counted 322 migrations from the SME platforms to the main board up to 15 October 2024: 140 from NSE Emerge and 182 from BSE SME. Migrations peaked at 39 on NSE in FY2020-21 and 34 on BSE in FY2021-22, and fell to 11 and 16 respectively in FY2023-24.

SME IPO and mainboard IPO compared

Source: SEBI (ICDR) Regulations 2018 consolidated to 21 March 2026; SEBI (LODR) Regulations 2015; SEBI consultation paper of 19 November 2024, paragraph 4, for the main-board allottee minimum.

The mainboard versus SME IPO page compares the two from the investor’s side, and mainboard IPO covers the main-board route.

The 2025 SME reforms

SEBI’s board approved the SME reforms on 18 December 2024 after a consultation paper of 19 November 2024, and the ICDR (Amendment) Regulations 2025 brought them into force on 8 March 2025. The LODR related-party change took effect on 1 April 2025.

Source: SEBI (ICDR) Regulations 2018 footnotes to Chapter IX; SEBI press release 36/2024 of 18 December 2024.

Two proposals in the consultation paper did not survive as drafted. A minimum issue size of Rs 10 crore was rejected; SEBI’s board memo noted that only 16 of 167 SME issues in FY2024-25 to 31 October 2024 were below Rs 10 crore. The proposed Rs 3 crore operating-profit test became Rs 1 crore.

Proposed changes in SEBI’s October 2026 consultation paper

SEBI published a second SME consultation paper on 14 October 2026, built on a working group’s review of the ICDR provisions, with public comments due by 4 November 2026. Nothing in it is in force: every rule elsewhere in this article remains the law until SEBI’s board approves an amendment and it is notified. The paper proposes reversing several of the 2025 choices.

Source: SEBI consultation paper on review of ICDR provisions related to initial public offer by small and medium enterprises, 14 October 2026, paragraphs 5.1 to 5.7.

The paper’s case against compulsory market making rests on its own data: from August 2025 to July 2026, market makers accounted for 0 to 10 per cent of total turnover in 361 NSE Emerge and 268 BSE SME scrips. Underwriting fees averaged 49.52 per cent of total issue expenses for NSE SME IPOs in FY2024-25 and 38.41 per cent in FY2025-26 (paragraph 5.6.1). On market capitalisation, SEBI’s analysis of 735 main-board and SME IPOs over three financial years found paid-up capital a poor guide to company size (paragraph 5.1.1).

SME IPO market data

SME IPOs outnumber main-board IPOs but raise a small share of the money. SEBI’s Annual Report 2025-26, Chapter 3, records 257 SME listings among 366 IPOs in FY2025-26, a “historic peak”, raising Rs 11,587 crore at an average issue size of Rs 45.1 crore, against 109 main-board IPOs raising about Rs 1.8 lakh crore. Of the 257 SME issues, three were between Rs 5 crore and Rs 10 crore, 197 between Rs 10 crore and Rs 25 crore, and 57 were Rs 25 crore or more.

FY2022-23 and FY2023-24 amounts are webnotes.in sums of SEBI’s NSE Emerge and BSE SME rows; SEBI’s text gives FY2023-24 as “more than Rs. 6000 crore”.

The split between the two platforms, from the November 2024 consultation paper:

Source: SEBI consultation paper on review of the SME segment framework, 19 November 2024, paragraph 13. Amounts include offer for sale.

FY2023-24 was the peak year in that series: 196 SME IPOs raised more than Rs 6,000 crore, against the earlier high of 148 companies raising Rs 2,147 crore in FY2017-18 (consultation paper, paragraph 14). Of 255 SME companies listed on NSE Emerge in FY2023-24 and FY2024-25 to 15 October 2024, 224 listed at a premium and 31 at a discount; by 15 October 2024, 64 were trading below their issue price (paragraph 18).

SEBI’s October 2026 consultation paper gives the cumulative position, using NSE and BSE data as on 31 July 2026: 1,496 companies listed on the SME platforms since inception, 365 of them since migrated to the main board, Rs 40,222 crore raised through SME IPOs in total, and a combined market capitalisation of Rs 4,70,984 crore for SME-listed companies including those that migrated (paragraph 3).

Enforcement and investor cautions

SEBI’s concern with the SME segment is post-listing conduct and use of proceeds, and the 2025 amendments followed an investor advisory and orders against individual issuers. SEBI’s press release 18/2024 of 28 August 2024 recorded that more than Rs 14,000 crore had been raised on the SME platforms in the preceding decade, around Rs 6,000 crore of it in FY2023-24, and warned that some SME companies and their promoters “project an unrealistic picture of their operations” after listing, then use bonus issues, stock splits and preferential allotments to give promoters an opportunity “to off-load their holdings … at elevated prices”. It told investors not to rely on unverified social media posts or invest on tips and rumours.

The board memo SEBI placed before its 18 December 2024 meeting described two patterns found in examinations: issue and rights proceeds diverted to related or connected parties and promoter-controlled shell companies, and fraudulent sales and purchases booked through circular transactions to inflate revenue.

Trafiksol ITS Technologies

SEBI ordered Trafiksol ITS Technologies Limited to refund its BSE SME IPO before the shares ever listed. The company raised Rs 44.87 crore at Rs 70 a share in an issue open from 10 to 12 September 2024, subscribed 345.65 times, with Ekadrisht Capital Private Limited as sole lead manager. After a complaint that Rs 17.70 crore of the proceeds was to buy software from a vendor that had not filed annual statements with the Ministry of Corporate Affairs, BSE deferred the listing scheduled for 17 September 2024 in consultation with SEBI.

SEBI’s final order WTM/AB/CFD/CFD-SEC-1/31023/2024-25 of 3 December 2024 found that the vendor profile and directors’ credentials submitted to BSE were fabricated, called the deferral “an unusual and unprecedented situation”, and directed the company to refund the money to allottees within one week with the interest earned, under BSE’s supervision, and to cancel the shares. Other allegations, including falsified financial statements, were left for separate adjudication; the company may approach the market again once proceedings conclude.

Risks for investors in SME IPOs

The risks an SME IPO investor carries follow from the Chapter IX and LODR rules, and each can be checked in the offer document.

• No regulator review. SEBI does not issue observations (ICDR Regulation 246(2)); the SME exchange’s review and the lead manager’s due diligence are the only checks before listing.
• Thin trading. Compulsory market making lasts only three years from listing (Regulation 261(1)). In the month to 15 October 2024, 15 NSE Emerge and 35 BSE SME companies had no trades, most of them suspended (SEBI consultation paper, 19 November 2024, paragraph 11).
• Concentrated, promoter-driven holdings. The consultation paper of November 2024 described SME companies as promoter-driven with limited private equity presence. Half the promoter’s excess holding unlocks one year after allotment (Regulation 238(b)).
• Half-yearly reporting. Results arrive twice a year (LODR Regulation 33(5)), so a deterioration can run six months before it is disclosed.
• Lower governance requirements. Independent-director and committee rules in LODR Regulations 17 to 27 do not apply (Regulation 15(2)(b)).
• Large ticket. The minimum bid exceeds Rs 2 lakh, so a single SME application is at least as large as the maximum main-board retail bid.

The grey market premium quoted for SME issues is unofficial and unregulated, and no SEBI or exchange rule governs it.

Taxation of SME IPO shares

Shares allotted in an SME IPO are listed equity shares and are taxed like main-board shares. Under the Income-tax Act 2025, in force from 1 April 2026, a gain on shares held for 12 months or less is short-term and taxed at 20 per cent (section 196), and a gain on shares held longer is long-term and taxed at 12.5 per cent on the amount above Rs 1,25,000 a year (section 198), where securities transaction tax was paid on the sale. These rates apply from tax year 2026-27. The capital gains tax in India page sets out the full regime, including set-off of losses.

Grievance route

A complaint about an SME IPO goes first to the registrar to the issue , whose name is in the offer document, and to the broker or self-certified syndicate bank that placed the bid. Unresolved complaints go to SEBI’s SCORES portal. If the issuer does not allot shares or unblock money within the SEBI timeline, it owes interest at 15 per cent a year under ICDR Regulation 269(3), and the lead manager must ensure payment. The lead manager’s responsibility continues after the issue for any issue-related matter (Regulation 271(1)).

See also

• Initial public offering
• Mainboard IPO
• Mainboard versus SME IPO
• NSE Emerge
• BSE SME
• SEBI (ICDR) Regulations 2018
• SEBI LODR Regulations
• SEBI
• National Stock Exchange
• Bombay Stock Exchange
• Book building
• Draft red herring prospectus
• Red herring prospectus
• Abridged prospectus
• Offer for sale
• IPO price band
• IPO lot size
• Anchor investor
• Qualified institutional buyer
• Non-institutional investor
• Retail individual investor
• IPO investor categories
• Basis of allotment
• IPO oversubscription and allotment
• Registrar to an issue
• Book running lead manager
• SEBI Merchant Bankers Regulations 1992
• Market maker
• Promoter
• UPI ASBA
• Bank ASBA through net banking
• IPO listing day
• IPO listing timeline after close
• Pre-open session on listing day
• Circuit limits and price bands
• ASM and GSM frameworks
• Grey market premium
• How to apply for an SME IPO on Zerodha
• How to check IPO allotment on the registrar’s site
• How to check IPO allotment on BSE and NSE
• IPO process in India
• Capital gains tax in India
• Securities transaction tax
• SEBI SCORES
• Companies Act 2013

External references

• SEBI (ICDR) Regulations 2018, consolidated to 21 March 2026
• SEBI consultation paper on the SME segment framework, 19 November 2024
• SEBI board meeting press release 36/2024, 18 December 2024
• SEBI advisory on SME-listed securities, press release 18/2024, 28 August 2024
• SEBI consultation paper on SME IPO provisions, 14 October 2026
• SEBI final order in Trafiksol ITS Technologies, 3 December 2024
• NSE circular NSE/CML/65739, revised NSE Emerge eligibility, 23 December 2024
• SEBI Annual Report 2025-26, Chapter 3

References

1. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations 2018, Chapter IX (Regulations 227 to 280), Schedules XIII and XIV, consolidated to 21 March 2026.
2. SEBI (Issue of Capital and Disclosure Requirements) (Amendment) Regulations 2025, effective 8 March 2025.
3. SEBI, Consultation paper on review of SME segment framework under SEBI (ICDR) Regulations 2018, and applicability of corporate governance provisions under SEBI (LODR) Regulations 2015 on SME companies, 19 November 2024.
4. SEBI, Board meeting press release No. 36/2024, 18 December 2024, and the board memorandum “Review of SME framework under SEBI (ICDR) Regulations, 2018”.
5. SEBI, Press release No. 18/2024, “Advisory regarding investment in securities of the Companies listed on the SME Segment of Stock Exchanges”, 28 August 2024.
6. Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, Regulations 15(2), 32(8) and 33(5).
7. SEBI circular SEBI/HO/CFD/TPD1/CIR/P/2023/140, 9 August 2023, reduction of timeline for listing of shares in public issue from T+6 to T+3.
8. SEBI, Annual Report 2025-26, Chapter 3, and SEBI Bulletin annexure, Table 6, October 2025.
9. SEBI, Consultation paper on recommendations pursuant to review of provisions of SEBI (ICDR) Regulations 2018 related to initial public offer by small and medium enterprises, 14 October 2026.
10. SEBI Master Circular for Stock Exchanges and Clearing Corporations, SEBI/HO/MRD-PoD2/CIR/P/2024/00181, 30 December 2024, Chapter 1, paragraphs 2.6, 5.2 and 5.3.
11. NSE circulars NSE/SME/63532 (22 August 2024), NSE/SME/62757 (4 July 2024) and NSE/CML/65739 (23 December 2024).
12. SEBI order WTM/AB/CFD/CFD-SEC-1/31023/2024-25, in the matter of Trafiksol ITS Technologies Limited, 3 December 2024.
13. Income-tax Act 2025 (Act 30 of 2025), sections 196 and 198.