September could become an important month for India’s SME IPO market. The Securities and Exchange Board of India, or SEBI, is reviewing the rules for small and medium-sized companies that want to raise money from the public.
The review comes at a time when interest in SME IPOs remains strong. Smaller companies have used this market to raise fresh capital, while investors have shown strong demand for several new issues. At the same time, SEBI has seen serious problems with liquidity, market making, underwriting and the move from the SME platform to the main board.
The regulator now wants a new framework that can help genuine small businesses access public money while also giving investors a fairer and safer market.
Why SEBI Wants New Rules
The SME market was created to give smaller companies a path to the stock market. A main-board IPO can be costly and difficult for a small business. The SME platform offers a more suitable route.
But the market has also faced problems.
One major issue is liquidity. SME shares can have large trade lots, and this can make it hard for small investors to buy or sell shares. The current rules generally require trades in lots of ₹2 lakh. That high amount can keep many investors away from the secondary market.
SEBI Chairman Tuhin Kanta Pandey has also pointed to odd lots and weak liquidity. He said some measures that were meant to control retail participation, such as larger application sizes and trade lots, did not produce the desired result.
This creates a simple problem. A share may get strong demand at the IPO stage, but after its market debut, investors may find it hard to trade the stock.
Market Making May Change
Market making is one of the main features of the SME platform today. A market maker must offer buy and sell quotes for SME shares. The purpose is simple: help create liquidity.
However, SEBI now believes this system may not work as well as expected. It can also add costs for small companies.
The regulator is therefore considering the removal of mandatory market making. This could lower costs for companies, but it also raises a question about liquidity after an IPO.
The key test will be whether normal buyers and sellers can create enough liquidity without the market-maker system.
Mandatory Underwriting May Also Go
SEBI is also considering the removal of mandatory underwriting for SME IPOs.
Underwriting gives an issuer a safety net if investors do not buy enough shares. But SEBI’s study found that fewer than five SME issues in the recent past had failed and needed such support.
That has led the regulator to question whether every SME IPO should carry the cost of mandatory underwriting.
The change could lower the cost of an IPO. Reports have said investment banks charged an average of 5.3% of the amount raised for SME offers, compared with about 2.2% for main-board offers.
For a small company, that difference can matter a lot.
A Bigger SME Platform
Another major proposal relates to the size of companies that can use the SME platform.
At present, issues with a market value of up to ₹500 crore fall under the SME platform. SEBI is considering a new market-value system.
Under the proposal, companies with a market value of up to ₹1,000 crore would have to use the SME platform. Companies above ₹1,000 crore and up to ₹4,000 crore could have a choice between the SME platform and the main board. Companies above ₹4,000 crore would have to use the main board.
SEBI is also considering a rise in the paid-up capital limit for SME companies from ₹25 crore to ₹100 crore.
This would make the SME platform much larger. It could also bring companies that are currently closer to the main board into the SME segment.
The ₹2 Lakh Trade Rule Could Go
Perhaps the most useful change for investors could be the removal of the fixed market-lot system.
At present, SME investors generally have to trade in fixed lots, with a minimum trade value of about ₹2 lakh. This makes SME shares less accessible to smaller investors.
SEBI is considering a system where investors can buy or sell shares in quantities of their choice. In simple terms, the system could become closer to the main board.
This could have a major effect on liquidity.
If investors can buy even one share or a small number of shares, more people may take part in the market. That could create more buyers and sellers after an IPO.
However, more access also means a need for strong checks against speculation and price manipulation.
Profit Rules May Become Stronger
SEBI is not only looking at easier access. It also wants stronger financial standards.
The current rule, introduced in 2024, says an SME IPO issuer must have an operating profit of at least ₹1 crore from operations in any two of the three previous financial years.
The new proposal would use an average operating profit test. A company would need an average operating profit of at least ₹3 crore across the three previous financial years, based on restated and consolidated financial statements.
This could make the entry test tougher for some smaller companies.
The idea is clear. A company should show a real and stable business before it asks public investors for money.
More Freedom for Corporate Funds
SEBI may also remove the current ₹10 crore limit on funds raised for general corporate purposes.
The 15% limit of the total issue size would remain.
This change could give larger SMEs more freedom to use IPO money for genuine business needs. At the same time, the 15% ceiling would remain as a check on the use of public money.
This is important because SEBI tightened rules in 2024 after concerns about how some SME IPO funds were used.
The 2024 rules also capped the offer-for-sale part at 20% of the total issue size. Selling shareholders could not offer more than 50% of their pre-issue holding. SEBI also barred issuers from using IPO funds to repay loans taken from promoters, promoter groups or related parties.
Changes to Lock-In Rules
The regulator is also reviewing lock-in rules.
The three-year lock-in for the minimum promoter contribution would stay. However, the clock would start from the IPO allotment date rather than the date of commercial production.
For promoter shares above the minimum contribution, the lock-in could become one year from allotment. This would replace the current staggered rule, under which 50% is locked for two years and the rest for one year.
For pre-issue capital held by non-promoters, the lock-in could fall from one year to six months.
These changes could give investors more flexibility while keeping a clear commitment from promoters.
Why September Matters
September may not bring the final rules at once. The key event is the consultation process. SEBI has said it plans a detailed proposal after its review of the SME framework.
The timing is important because the wider IPO market has also regained strength. India’s IPO market has seen a strong revival in the second half of 2026, with better market conditions, strong investor confidence and improved liquidity.
This means SEBI is not fixing a market that nobody wants. It is trying to improve a market that already has strong demand.
That makes the task harder.
The Big Question for Investors
The real question is not whether SEBI will make SME IPOs easier or harder.
The bigger question is whether the new rules can make them better.
Removing mandatory market making and underwriting could cut costs. Removing the ₹2 lakh trade rule could improve liquidity. A wider SME platform could give more companies access to public money.
But these changes could also create new risks.
If more companies enter the SME market and investors can trade more freely, SEBI will need strong checks against false demand, unusual price moves and poor corporate governance.
A larger market is not always a better market. It needs trust.
A Possible Turning Point
September could mark the start of a new phase for India’s SME IPO market.
The proposed changes show that SEBI is moving away from a system based only on restrictions. The regulator now appears focused on a wider question: how can the SME market raise capital at a lower cost while also offer fair access and better price discovery?
That balance will decide the success of the reform.
For companies, lower costs could make the public market more useful. For investors, smaller trade sizes could make SME shares easier to access. For SEBI, the challenge will be to make sure easier access does not create a fresh wave of poor-quality issues or speculative excess.
The SME market has already become an important part of India’s capital market. The next step is to make it deeper, more liquid and more credible.
If SEBI gets that balance right, September could be remembered not simply as another month for SME IPOs, but as the start of a major change in how India’s smaller companies enter the public market.
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