For Indian SMEs, getting listed as an IPO is a great lifeline. But, as per the latest news, the Securities and Exchange Board of India (SEBI) will be issuing new rules that will stop businesses below the valuation of INR 300-500 million from applying for IPOs.

As of now, no published news from SEBI verified this information. Currently, a business needs to be worth INR 250 million to apply for an IPO listing. The information regarding the raising of the IPO cap is coming out of two different sources, who have refused to identify themselves as they are not authorised to speak to the press.

If these sources are to be believed, as is being reported by all major news sources, then a major blow is in store for SMEs across the country.

Why will SEBI make this Change?

The rumours began when SEBI received complaints regarding a separate IPO listing platform for SMEs being misused. As per the two unidentified sources, they have been part of direct conversations that state this as the reason. They claim that SEBI will be pushing the raised IPO cap to ensure the safety of investors.

There is some fact to this claim. Earlier this year, Madhabi Puri, Chairperson of SEBI, also mentioned price manipulation issues regarding the framework for SME listings. He had mentioned that SEBI was gathering evidence regarding the same. Later during the year, three SMEs were barred from entering the capital market by SEBI as well.

The two sources have also claimed that the new rules will be announced before the end of the year. As per PRIME Database, the last financial year witnessed 205 SMEs entering IPOs, and raising investments worth INR 60 billion. This was a large jump from the previous year (FY2023) 125 firms raising INR 22 billion.

If indeed the cap is raised to anywhere between INR 300 to 500 million, it would result in a drop in the number of SMEs entering the IPO stage. For the Indian SME ecosystem, this would be a grave situation.

What is SEBI Saying about this?

While many major journals have been asking SEBI representatives to speak on the matter, they have denied any comments. So, while there is uncertainty regarding the entire issue, the claims of the two unidentified sources are largely being considered as true.

One of the two sources mentioned “A minimum offer size will ensure that serious companies are accessing the capital markets and in turn safeguard the interest of investors”; which is in line with comments from the SEBI chairperson earlier this year.