SEBIs recent proposal regarding SME IPOs, while may prove beneficial in safeguarding interests of the investors, may create new challenges for the SMEs who go IPO way to raise capital to clear their debts and finance their growth. I believe that an IPO is the right medium for SMEs to raise capital from the public rather than going for the traditional banks funding and we have already seen the frenzy with SME IPOs in the last two years with around 205 SME IPOs launched in CY 2024 with the cumulative fundraising pegged at Rs 7,016 crore -- significantly higher than last year's Rs 4,687 crore. 

The retail individual participation in the stock market has increased significantly which is evident from the observation made in the consultation paper by SEBI which notes that the applicant-to-allotted investor has increased manifold - from 245X in the FY-24 from 4X in FY-22. Though the proposed increase to double the minimum investment amount Rs 2 lakh is meant to protect investors from the high risks associated with the SME IPOs, it may lead to less participation from the retail investors and will lead to reduction in demand for SME IPO.   

I welcome the proposal to increase the requirement of minimum 50 allottees in public issues to 200 as that will ensure a sizable number of diverse investors and greater liquidity in the market. Also the proposal to make a company ineligible for IPO if any fraudulent or economic offence case is registered against the promoters or they are barred from accessing the capital markets along with the phased release of promoter locked in will ensure transparency and accountability in the whole process is also a right insight. 

Though there is need for strict norms and surveillance as far as SME IPO is concerned as there are cases where the SMEs have shown inflated revenues and have diverted funds raised through IPOs to shell companies, at the same time it is equally important to strike a balance to ensure that genuine SMEs are not discouraged from accessing the capital markets. Overly stringent norms could create unnecessary barriers for smaller enterprises with legitimate growth prospects, potentially stifling innovation and economic development. Therefore, while ensuring transparency, accountability, and proper utilisation of IPO funds, the regulatory framework should also be supportive and conducive to fostering the growth of genuine SMEs seeking to expand their businesses through the IPOs.

I invite your opinions.