The number of small businesses going public grew at a slower pace this year as stringent regulatory requirements to curb frenzy and unfavourable macroeconomic conditions dampened issuances.
The number of initial public offerings (IPOs) on the small and medium enterprises (SME) platforms grew 12.5% so far this year compared with a 31% surge in 2024, according to a report from Pantomath Capital Advisors.
The Securities and Exchange Board of India's (Sebi's) regulatory curbs significantly contributed to the slowdown by tightening eligibility, governance, and fund-use norms starting late 2024 and into 2025, said Jay Jhaveri, partner at Bhuta Shah and Co. LLP. These changes aimed to curb misuse and speculation, but made listings harder for some SMEs, he said.
Along with these policy-level changes, trade and other macro factors were also at play, according to Manick Wadhwa, director at SKI Capital. “After the US elections and the new president taking charge in January, macroeconomic headwinds began to emerge, and April and May saw a lull due to geopolitical tensions between India and Pakistan, which impacted IPO activity.”
Sebi cracked down on potential manipulation in SME offers. In 2024, it introduced measures like stricter operating profit requirements for SME issuers, a cap on the offer-for-sale (OFS) component, and steps to curb listing-day gains.
A company to list on the SME platform of either the National Stock Exchange (NSE) or BSE Ltd must have an operating profit of ₹1 crore for either two of the three previous financial years before filing for the IPO. NSE has an additional eligibility criterion of positive free cash flow to equity (FCFE) for at least two out of three financial years preceding the application.
In 2024, Sebi capped the offer for sale of shares by existing investors at 20% of the total issue size. Moreover, the selling shareholders cannot sell more than 50% of their holdings in an IPO.
Sebi’s former chairperson Madhabi Puri Buch had attributed oversubscription and the steep listing premium to the issue price to exuberance in SME IPOs.
Gap narrows
The size of an average SME IPO has risen by 18% since 2024, according to an analysis by Panthomath Capital Advisors, even as the metric shrank by 3% for the mainboard IPOs.
“Eligibility filters and exchange norms are increasingly steering the SME pipeline toward more business-ready issuers, which typically seek larger raises,” said Jhaveri. He also said that post the massive oversubscription phase in SME issues, the price discovery has improved, enabling bigger fund-raises.
The total fundraising on the SME platform rose 31% year-on-year to ₹11,539 crore in 2025, according to Pantomath Capital. That compares with an 86% growth in 2024.
Improving quality SMEs going public has also narrowed the gap between the small-business IPO and the smallest mainboard offer over the years. According to Primedatabase.com, the biggest SME IPOs have been larger than the smallest mainboard issues over the past four years.
“The gap is clearly narrowing. The biggest SME IPO issue size in 2025 was ₹166 crore, while the issue size for the smallest IPO in the mainboard was ₹116 crore,” said Pranav Haldea, managing director at Primedatabase.com.
Mahavir Lunawat, chairman and managing director at Pantomath Capital, said on the mainboard, an increasing proportion of funds is being deployed toward capacity expansion, balance sheet strengthening, debt reduction, and working capital requirements, even as offers for sale continue to coexist as part of broader capital market activity. In the SME segment, he said, fundraising is led by fresh issue, with capital largely directed toward capital expenditure, capacity augmentation, and working capital to scale up.
To be sure, the average size of SME IPOs has increased over the past decade as the Indian market matured. However, since Sebi’s restrictions, the type of companies looking to list on the SME platform has changed, said experts.
With tighter compliances, SME companies coming to the exchange today are far more prepared with proven operations, defined expansion plans, and long-term visibility, said Kresha Gupta, director and fund manager, Steptrade Capital, an alternative investment fund backing companies listed on SME exchanges.
With strong fundamentals, clear growth roadmaps, issue sizes will naturally move higher and as expansion plans – capacity growth, technology upgrades – for such companies increase the capital requirement itself increases, Gupta added.
Jhaveri said the stricter eligibility and use-of-proceeds restrictions tend to filter out weaker micro-issuers and may leave a pool of relatively larger, better-prepared companies—mechanically lifting average issue size over time. As SME issuers mature, they may raise larger rounds pre-migration to the mainboard, he said.