SEBI Tightens Rules for SME IPOs: What It Means for Investors?
The Securities and Exchange Board of India (SEBI) has introduced stricter regulations for SME IPOs to ensure only credible companies with strong fundamentals enter the market. Under the new rules, SMEs can launch IPOs only if they report an operating profit (earnings before interest, depreciation, and tax) of ₹1 crore for at least two of the last three financial years. Additionally, companies are barred from raising funds to repay loans to promoter entities, addressing concerns over misuse of IPO proceeds. Key changes include:
Profitability Clause: IPO eligibility now requires sustained operating profits for two out of three years.
Offer for Sale (OFS) Cap: OFS cannot exceed 20% of the issue size, and selling shareholders are restricted to offloading only 50% of their holdings.
General Corporate Purpose Cap: Limited to 15% of the IPO size or ₹10 crore, whichever is lower.
Public Feedback Period: Draft red herring prospectus (DRHP) will remain open for public comments for 21 days.
Promoter Lock-in Rules: Excess promoter holdings beyond the Minimum Promoter Contribution (MPC) will be released in phases over two years.
Are these new rules the game-changer SME IPOs need? Will they curb dubious listings and ensure better returns for investors? These measures aim to filter out companies with limited growth potential and protect investor interests. In this video, Neeraj Gaurh, Fund Manager at Axis Securities PMS, shares his perspective. He praises SEBI’s move, highlighting how these changes can safeguard retail investors’ money while ensuring IPO funds are utilised effectively. According to him, these reforms will lead to long-term benefits for investors by fostering a transparent and reliable market. 📺 Watch this video for Neeraj Gaurh’s full analysis, and guidance to make informed investment decisions!