Sebi proposes ₹1,000 crore threshold for MSP IPOs, eases exit rules | Today’s news
Mumbai: The Securities and Exchange Board of India (Sebi) has proposed an overhaul of the initial public offering (IPO) framework for small and medium enterprises (SMEs), including replacing eligibility based on paid-up capital with market capitalization, reducing the lock-in period for pre-IPO investors and reducing underwriting costs while maintaining safeguards for public investors.
In a consultation paper issued on Wednesday, the regulator proposed that companies with a market capitalization after the issuance of up to ₹1,000 crore should be listed exclusively on the SME platform, while those valued between ₹1000 million and ₹4,000 crore could choose a segment subject to more stringent financial reporting requirements, including the adoption of Indian Accounting Standards (Ind AS) where applicable.
The proposals seek to clarify the rules for a segment that has grown significantly since its inception. As of July 31, 2026, 1,496 entities were listed on the SME platform, including companies that subsequently moved to the main board. SME IPOs raised the cumulative amount ₹40,222 million, while the market capitalization of listed entities, including those that migrated, was ₹4.71 trillion.
Sebi has also proposed to increase the minimum average operating profit requirement ₹3 trillion annually for the previous three financial years, calculated on the revised consolidated financial statements, from the existing requirement of ₹1 million for at least two of the previous three years.
However, companies that do not reach the profitability threshold could still enter the market through an alternative route. Under the proposal, such issuers would have to use a book-building process and allocate at least 75% of the net offering to qualified institutional buyers (QIBs); otherwise, a full refund for the subscription would have to be made.
The regulator suggested removal ₹10 crore absolute cap on use of IPO proceeds for general purposes corporate purposes, while maintaining a limit of 15% of the issue size.
The proposed changes also aim to give institutional investors greater flexibility in exiting their investments. Sebi has proposed a dedicated framework for offers for sale (OFS), including a requirement to hold shares sold through this route for one year.
Qualified institutional buyers could be exempted from the existing quantity limits for OFS, subject to guarantees, although these relaxations would not apply to matters using the alternative route for companies that fail the profitability test.
Under current regulations, the OFS of the selling shareholder may not exceed 20% of the total size of the issue and shares offered through the OFS by the seller shareholders may not exceed 50% of their respective holding before the shares are issued.
The regulator invited the public to comment on the consultation document by November 4.
