The market regulator is proposing to lower SME IPO investment thresholds back to ₹1 lakh while raising the profit requirement for companies to ₹3 crore. This move aims to balance retail investor access with tighter listing standards for SMEs. These changes follow a 2025 policy that had previously increased entry hurdles to address speculation in the volatile segment.
The Securities and Exchange Board of India (SEBI) has released a consultation paper detailing a significant shift in how Small and Medium Enterprise (SME) platforms operate on Indian stock exchanges. The regulator is proposing to lower the minimum application size for SME IPOs back to ₹1 lakh, reversing a policy from March 2025 that had raised the threshold to ₹2 lakh. The regulator also aims to improve trading liquidity by shifting from the current price-based lot size system to a single-share trading model.
While these changes may seem more accessible for retail investors, the regulator is simultaneously tightening the criteria for companies that wish to list on these platforms. Under the new proposals, companies must show an average operating profit of ₹3 crore per year over the last three financial years. This is a significant jump from the existing requirement, which mandates at least ₹1 crore in profit across two of the last three years. Additionally, the number of mandatory allottees for an IPO would increase from 200 to 500, setting a higher bar for successful fundraising.
The SME segment has seen rapid growth in recent years, with companies raising nearly ₹40,000 crore since 2012, with the vast majority of this activity occurring from 2023 onwards. However, this growth has also drawn attention to the inherent volatility and speculative nature of SME stocks. Critics of the proposed reduction in application size suggest that lower thresholds could lead to more retail participation in high-risk stocks, potentially increasing vulnerability to sharp price swings. Conversely, the move toward stricter eligibility criteria and a proposed mandatory migration to the mainboard for firms exceeding ₹4,000 crore in market capitalization indicates a regulatory effort to ensure that only companies with more stable financial foundations remain in the SME ecosystem.
The final implementation of these rules depends on the consultation process. Investors may closely track the outcome of these discussions, as the balance between encouraging liquidity and protecting retail participants from excessive volatility in the SME segment remains a core focus for the regulator. The focus for market participants will now shift to how these proposed changes affect both company listing quality and overall participation trends in the SME space.