The market regulator is reportedly also working on tweaking the eligibility criteria for SME IPOs to ensure only fundamentally strong companies make the cut.
The Securities and Exchange Board of India (SEBI) has instructed stock exchanges to exercise increased vigilance when approving initial public offerings (IPOs) for small and medium enterprises (SMEs).
A report from Moneycontrol, citing sources, mentioned that SEBI has directed both BSE and NSE to enhance due diligence during the application review process, even if it results in slower IPO approvals.
The report further noted that SEBI’s advice for heightened caution on SME IPO approvals has led the exchanges to request more detailed information from applicants regarding their capital expenditure plans and the purpose of the public issue.
The market regulator is also reportedly working on revising the eligibility criteria for SME IPOs to ensure that only companies with strong fundamentals are approved. Under the current criteria, any SME that has achieved an operating profit in two out of the three years preceding the IPO document filing is eligible for listing on the SME platforms of the stock exchanges.
According to Prime Database, a total of 56 SMEs raised ₹1,633 crore from the primary market in the first quarter of this fiscal year.
Several experts, including SEBI Chairperson Madhabi Puri Buch, have expressed concerns about potential manipulation in SME IPOs.
Earlier this month, NSE issued a circular imposing a 90% cap on the listing price of shares under the SME segment compared to the IPO price. This decision aims to prevent scenarios where a company’s stock price significantly exceeds its intrinsic value.
“To standardise the opening price discovery/equilibrium price across exchanges during the special pre-open session for initial public offers (IPOs) on the SME platform, it has been decided to impose an overall cap of up to 90% over the issue price for SME IPOs,” the NSE circular stated.