Page 35 - Policy Economic Report -August 2026

POLICY AND ECONOMIC
OIL & GAS MARKET

combined with sustained infrastructure investment and stronger growth dynamism, could support an
improvement in India's sovereign credit standing.

7. SEBI considers greater institutional participation in SME Public Offerings

India's capital markets regulator, the Securities and Exchange Board of India (SEBI), is considering a set of
changes to strengthen the regulatory framework governing public offerings by small and medium-sized
enterprises (SMEs). The proposed reforms could bring several features of the mainboard IPO framework
into the SME segment, including greater participation by institutional investors, higher eligibility
requirements and enhanced safeguards for investors. The move comes amid growing regulatory concerns
over the use of funds raised through SME public offerings, high intermediary fees and practices that may
artificially inflate subscription levels.

Under the proposed framework, up to 50 per cent of an SME issue could be reserved for Qualified
Institutional Buyers (QIBs), while 35 per cent could be allocated to retail investors and 15 per cent to non-
institutional investors. Within the institutional allocation, as much as 60 per cent could potentially be
reserved for anchor investors that commit funds before the wider public offering. The proposed structure
would bring the distribution of SME IPOs closer to the allocation framework currently applicable to larger
companies and could increase the role of professional investors in assessing the quality and prospects of
smaller issuers.

SEBI is also considering stricter eligibility criteria for SME listings. One proposal would require companies
to report average profits of at least ?30 million over the preceding three years, compared with the existing
profitability requirement cited in the report. Another proposal could replace the existing post-issue capital
requirement with a post-issue market capitalization threshold of ?10 billion to ?40 billion. The regulator
is also examining whether the upper limit on the size of companies eligible for SME platforms should be
increased.

The reforms are being considered against the backdrop of the rapid expansion of India's SME primary
market. Small businesses raised approximately US$1.2 billion through more than 250 offerings in 2025,
while around 100 offerings had raised less than half that amount during the first eight months of 2026. By
comparison, large companies had raised roughly 17 times as much as SMEs during 2026, highlighting the
continuing scale difference between the two segments despite the growing popularity of SME listings.

The regulator is also examining changes to the offer-for-sale and trading framework for SME companies.
An offer-for-sale mechanism could allow existing investors to sell shares as part of a public issue, while
the proposed framework could reduce the lock-in period for pre-IPO shareholders from one year to six
months. SEBI is also considering allowing trading in individual shares rather than maintaining the current
requirement of a minimum trade value of ?2 lakh. Such changes could improve liquidity and broaden
investor participation, although they would also require appropriate safeguards given the relatively
smaller scale and lower liquidity of SME stocks.

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