Key Details
SEBI’s consultation on the Issue of Capital and Disclosure Requirements Regulations, 2018 would change both which companies can use the SME platform and how investors participate. The paper also proposes changes to underwriting, offers for sale by existing shareholders, share lock-ins and movement from the SME platform to the Main Board. Comments are invited until 4 November 2026.
Area | Existing Framework | SEBI Proposal |
|---|---|---|
IPO eligibility | Based on post-issue paid-up share capital | Based on estimated post-issue market value: SME platform for companies up to ₹1,000 crore; a choice of platforms above ₹1,000 crore and up to ₹4,000 crore |
Operating profit | At least ₹1 crore in two of the previous three financial years | Average of at least ₹3 crore a year over the previous three years |
IPO application | Minimum value above ₹2 lakh | Minimum ₹1 lakh, comprising at least four lots |
Trading after listing | Shares trade in prescribed lots | Trading lot of one share |
Shareholder spread | At least 200 allottees | At least 500 allottees |
Market making | Compulsory for three years | Compulsory requirement removed |
Company Value Would Replace Nominal Share Capital as the Listing Test
SEBI argues that paid-up share capital does not reliably show a company’s economic size: firms with similar nominal capital can have very different valuations. Under the proposed test, a company valued at up to ₹1,000 crore after its IPO would use the SME platform. One valued above that amount and up to ₹4,000 crore could also choose it, but would have to present financial statements prepared under Indian Accounting Standards if it had not already adopted them.
The scale of the market makes the distinction consequential. By July 2026, 1,496 companies had listed on SME platforms since inception, including those subsequently moved to the Main Board, and SME IPOs had raised ₹40,222 crore. The proposal would treat the SME platform as a route for companies of differing sizes—not simply those with low nominal share capital.
A Tougher Profit Test Comes With a Route for Growth Firms
SEBI proposes raising the standard operating-profit requirement to a three-year average of ₹3 crore a year. Yet a company with an established business that falls short of that figure would not necessarily be barred. It could make an IPO through a price-discovery process known as book-building if at least 75% of the net offer is allotted to qualified institutional buyers. If that allocation is not achieved, investors’ subscription money would be refunded. Other business-history and continuity requirements would still apply.
The paired proposals seek to distinguish business maturity from current profitability: the ordinary route would demand stronger earnings, while the alternative would rely on substantial institutional participation for otherwise eligible growth firms.
Easier Trading Would Be Paired With a Wider Investor Base
Reducing the minimum IPO application from above ₹2 lakh to ₹1 lakh would lower the amount needed to apply. Separately, permitting one-share trades after listing would let investors buy or sell holdings that currently fall below a prescribed trading lot. The paper proposes increasing the minimum number of IPO allottees from 200 to 500, broadening the distribution of shares.
SEBI would also remove compulsory market making and full-issue underwriting requirements that add to fundraising costs. It proposes retaining a 90% minimum subscription requirement for applicable issues. For existing shareholders selling shares through an IPO, the paper proposes a one-year holding requirement with specified exceptions, while giving qualified institutional investors more room to sell—except in issues using the alternative, institution-backed eligibility route.
Movement to the Main Board Would Follow the New Size Test
For companies listed under the proposed framework, movement from the SME platform to the Main Board could be optional at a market value of ₹1,000 crore to below ₹4,000 crore, subject to Main Board criteria, and required above ₹4,000 crore. SEBI proposes using a 12-week measure of share prices when assessing these thresholds, limiting the effect of a brief price spike. Companies already SME-listed when new rules are notified would remain under the existing migration framework.
What Is Market Capitalisation?
Market capitalisation is the value of all a company’s outstanding shares at a given share price. Unlike paid-up capital, which reflects the nominal value of issued shares, it changes with the value assigned to the company. For an IPO, the proposed eligibility test would use the estimated value after the issue at the offer price.
Policy Relevance
For companies seeking capital: The proposed size test and alternative route for less-profitable firms could change whether they pursue an SME or Main Board IPO. The higher standard profit threshold would pull in the other direction.
For investors: A smaller application and one-share trading lot would improve access and flexibility. They do not remove the risks of investing in smaller listed companies, making the proposed disclosure, eligibility and shareholder-spread safeguards important.
For SEBI and exchanges: Removing compulsory market making would lower issuer costs, but makes actual trading liquidity a measure worth watching alongside wider participation. The consultation’s transition provisions also matter for firms already preparing an IPO.
Relevant Question for Policy Stakeholders: Will lower application and trading barriers widen genuine participation in SME shares while the proposed eligibility and disclosure safeguards keep pace with the risks investors take?
Follow the Full Consultation Paper Here: SEBI Consultation on SME Initial Public Offering Rules