SEBI is preparing a major change in India’s SME IPO market. The proposed changes aim not only to give more companies access to the SME platform, but also to increase participation from small investors and reduce the cost of IPOs for companies.
These changes have been proposed at a time when activity in the SME IPO market remains quite strong. In such a situation, the proposed reforms could shape the direction of the next phase of the SME market.
Let us understand what is going to change under SEBI’s proposed SME IPO reforms and what impact it could have on companies and investors.
What’s Happening?
SEBI’s Primary Market Advisory Committee discussed proposals related to SME listings on 12 August. Following this, SEBI is expected to issue a consultation paper and seek public feedback soon. This means these changes are not final rules at present, but proposed reforms.
The biggest change is related to the eligibility of companies listing on the SME platform. According to the proposal, companies with a market value of up to Rs 4,000 crore may be allowed to use the SME platform. Under the existing system, companies with a valuation of generally less than Rs 500 crore are considered part of the small-cap category, while companies with a value of less than Rs 5 billion generally come under the SME platform.
Along with this, there is a proposal to increase the paid-up capital limit for the SME platform from Rs 25 crore to Rs 100 crore. This may give companies with a value between Rs 1,000 crore and Rs 4,000 crore the option to choose between the SME platform and the mainboard. This could be the biggest overhaul of the SME platform since it was launched in 2012.
Preparation to Remove the Rs 2 Lakh Trading Obligation
SEBI is considering removing the minimum trading size of Rs 2 lakh in SME shares. Under the existing rules, bids have to be placed in multiples of Rs 2 lakh, which is a significant entry barrier for small investors. Notably, SEBI had increased this limit from Rs 1 lakh to Rs 2 lakh less than two years ago to control speculation in the SME primary market.
If the proposal is implemented, investors will be able to buy and sell SME shares with smaller amounts, which could increase the reach of the market and potentially improve liquidity. Along with this, SEBI is also considering easing requirements such as having a designated market maker for three years and getting the entire IPO underwritten by merchant bankers.
This could reduce the listing costs for companies, although it would also change the existing liquidity arrangement through market-making.
Direct Impact Will Fall on the Cost of SME IPOs
SEBI’s proposed changes could reduce the listing costs of SME companies. Currently, market-makers have to continuously provide buy and sell quotes, while in a situation of weak demand, the responsibility of underwriters increases. This adds to the cost for companies. According to Prime Database, investment-banking fees for SME IPOs average 5.3% of the amount raised, compared with about 2.2% for mainboard IPOs. This means the cost of an SME IPO is significantly higher than that of a mainboard offering.
SEBI is considering easing these market-making and underwriting requirements. This could make the SME platform more cost-efficient for companies and may also attract larger companies to list on the platform. However, this change has been proposed at a time when regulatory scrutiny in the SME market has already increased. About 100 SME listings have taken place in 2026 so far, compared with 267 listings in 2025. Around 80 SMEs were also listed in the first half of 2026.
What Does This Mean for Investors?
From an investor’s point of view, the most important change is the proposed removal of the minimum trading size of Rs 2 lakh. Under the current rules, the requirement to bid in multiples of Rs 2 lakh limits the participation of small investors. Removing it would allow investors to buy or sell SME shares in smaller quantities.
This change could make the SME market more accessible and help increase the number of investors. At the same time, giving companies with a value of Rs 1,000 crore to Rs 4,000 crore the option to choose between the SME platform and the mainboard could also increase the range of companies available to investors.
However, it is important to understand that easier access does not automatically mean better investment opportunities. The purpose of the proposed rules is to increase market access; they do not guarantee the business quality or valuation of any SME company.
What’s Next?
SEBI’s proposal could be a major step towards making the SME IPO market broader, more cost-efficient, and more accessible to investors. The nearly 100 SME listings so far in 2026 and 267 listings in 2025 show that there is already strong activity in this segment.
However, these reforms are still at the proposal stage, and the picture will become clear only after SEBI issues its consultation paper and the subsequent process is completed. If companies with a value of up to Rs 4,000 crore get the option of using the SME platform, the minimum trading size of Rs 2 lakh is removed, and the obligations related to market-making and underwriting are changed, the structure of the SME IPO market could see a significant shift.
Disclaimer: This article is for educational and informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. The companies mentioned are cited as examples within the context of market developments. Investors are advised to conduct their own due diligence and consult their financial advisor before making any investment decisions.
Investments in the securities market are subject to market risks. Read all related documents carefully before investing.
