SEBI proposes major changes in SME IPO rules

Markets No. 72 16 October 2026 · 5 min read

On 14 October 2026, SEBI, the markets regulator, proposed new rules for IPOs by small and medium companies (SMEs), which list on separate SME boards of BSE and NSE. These are proposals only: comments close on 4 November 2026. What would change:

Who must list as an SME: any company worth up to ₹1,000 crore at its IPO price. Companies worth up to ₹4,000 crore could choose to. Today the line is drawn on share capital, a book figure.

Main-board IPOs moved down: in 2026, 15 of the 75 main-board IPOs were worth under ₹1,000 crore, from ₹360 crore to ₹840 crore. They would have had to list as SMEs.

Tougher profit test: an average operating profit of ₹3 crore a year over 3 years, instead of ₹1 crore in 2 of the 3 years. A company that misses it could still list if big institutions (funds, banks, insurers) take at least 75% of the shares on offer.

Few would have failed it: of the 140 SME IPOs that listed from 1 January to 20 September 2026, 122 show 3 full years of operating profit. Only 7 average under ₹3 crore, and 6 of those pass today's rule. They raised ₹189 crore of the ₹6,902 crore.

Why those 7 fail: all had a late jump. Accretion Nutraveda's operating profit rose from ₹0.59 crore in FY23 to ₹3.65 crore in FY25.

Smaller minimum bid: ₹1 lakh, down from above ₹2 lakh.

Trading 1 share at a time: after listing, instead of in fixed lots of 100 to 10,000 shares.

More buyers in each IPO: at least 500, up from 200.

Shorter lock-in for early investors: shares held before the IPO by people other than the promoters (the founders and controlling owners) could be sold after 6 months, not 1 year.

Simpler lock-in for promoters: their shares above the minimum stake would be locked for 1 year, instead of half for 2 years and half for 1.

Selling caps stay, except for institutions: sellers in the IPO stay capped at 20% of the issue and 50% of their own shares, but institutions that have held for a year are freed. In 2026, 41 SME IPOs included such sales, worth ₹400 crore, or 5.8% of the money. All 102 named sellers were promoters, their families or individuals, so this would have freed none.

No compulsory market maker: today one must quote buy and sell prices for 3 years, holding at least 5% of the shares. SEBI found market makers were 0 to 10% of trading in 361 NSE and 268 BSE SME stocks.

No full underwriting: today the whole issue must be 100% underwritten, with lead managers taking 15% themselves. Instead, an IPO would close only if enough real investors subscribe.

More freedom with the money: up to 15% could still go to general purposes, without today's ₹10 crore cap.

Bigger anchor share: up to 60% of the institutions' portion could go to anchor investors, who buy a day before the IPO opens.

What it means: the one tougher rule would have stopped 5.7% of the SME IPOs it can test, all with profits that jumped just before listing. The value test would have moved more than 2x as many main-board IPOs onto the SME board, where the minimum bid would be ₹1 lakh and the market maker and full underwriting are gone. The plan makes the SME board bigger and cheaper to enter, with fewer backstops, far more than it makes it stricter.

What SEBI's plan for small-company IPOs would change

Each proposal in SEBI's paper of 14 October 2026, today's rule against the new one. Only the profit test gets stricter, and it would have stopped 7 of 122 SME IPOs in 2026.

SEBI consultation paper on SME IPOs, 14 October 2026; 2026 IPOs listed 1 January to 20 September from Chittorgarh's lists and the offer documents · Oct 2026

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