India proposes SME IPO rule overhaul to tighten profit norms

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India SME IPO rule overhaul

Highlights

SEBI proposes raising the minimum annual average operating profit for SME IPO eligibility to 30 million rupees over three years, up from 10 million rupees.
Companies valued up to 10 billion rupees must list on the SME platform, while those between 10 and 40 billion rupees can choose between SME and main boards; above 40 billion rupees mandate main board listing.
QIB shareholders would gain flexibility to sell more than 20% of the IPO size and over 50% of pre-issue holdings in SME IPOs, subject to a one-year holding period.

Proposed listing rules and investor access

As reported by Reuters, the Securities and Exchange Board of India on Wednesday proposes a broader overhaul of SME IPO rules, including stricter eligibility thresholds and a wider role for qualified institutional buyers, or QIBs.

Under the proposals, companies valued at up to 10 billion rupees after the issue would list on the SME platform, while those valued between 10 billion and 40 billion rupees could choose between the SME and main boards. Companies valued above 40 billion rupees would list on the main board.

SEBI's working group also proposes raising the minimum profitability requirement for SME IPOs to an annual average operating profit of 30 million rupees over the previous three financial years. That compares with the current requirement of at least 10 million rupees in two of the past three years.

Companies that do not meet the profit test would still be allowed to list if at least 75% of the net offer is allotted to QIBs. The proposals also allow 60% of the portion reserved for QIBs to be allocated to anchor investors.

Implications for SME fundraising and market structure

The package would also give QIB shareholders more flexibility to sell stock through IPOs. They would be allowed to sell shares worth more than 20% of the total IPO size through the offer-for-sale route and more than 50% of their pre-issue shareholding, provided those shares have been held for at least one year.

That exemption would not apply to IPOs that use the alternative route for companies failing the profit test, preserving tighter conditions for issuers that depend on institutional backing to reach the market. Other measures include raising the minimum number of IPO allottees to 500, easing caps on funds raised for general corporate purposes, and revising shareholder lock-in rules.

SEBI is seeking public comments on the proposals until November 4, indicating the changes remain at the consultation stage as India weighs tighter SME admission standards against broader access to equity capital.

Our earlier article on market structure changes discussed how shifting rules and new trading trends are influencing capital formation and the way exchanges operate, with topics ranging from extended-hours trading to tokenization and AI. We also noted how these evolving market conditions link to real-world listing activity, including ProAm Explorations’ preparation to access public funding through a Canadian Securities Exchange listing.

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