SEBI’s SME IPO plan may cut costs, but liquidity concerns remain
The Securities and Exchange Board of India (SEBI) has proposed scrapping mandatory market-making for small and medium enterprise (SME) stocks, a move that could make public listings cheaper but also leave investors more reliant on genuine market demand to exit, according to experts.
Under the current rules, companies listed on SME platforms must appoint a market maker for at least three years from the date of listing or migration to the main board. These market makers must also hold inventory equal to at least 5 per cent of the total securities being listed.
SEBI has now suggested doing away with this obligation, as well as the requirement for 100 per cent underwriting of SME IPOs, as part of a broader revamp of the SME segment. The consultation paper is open for public feedback until November 4.
Makarand M Joshi, founder partner at corporate compliance firm MMJC & Associates, called the removal of compulsory three-year market-making and full underwriting the key reform. He noted that with unique investors on the NSE crossing 13 crore in April 2026, prices should be set by actual demand and supply rather than intermediary intervention, which he believes will make SME listings more robust and genuinely accessible to strong businesses.
However, experts caution that easier trading conditions do not automatically ensure that investors can exit when they want. Siddharth Batra, an advocate-on-record at the Supreme Court, pointed out that while removing compulsory market-making will lower costs and compliance requirements, it raises liquidity concerns. Without enough buyers and sellers, investors may struggle to offload their holdings, he said.
SEBI has also proposed cutting the minimum SME IPO application size from ₹2 lakh to ₹1 lakh and permitting trading in SME-listed shares in single-share lots. Additionally, it wants to replace paid-up capital-based eligibility norms with market-capitalisation criteria and increase the minimum average operating profit requirement to ₹3 crore per year over the last three financial years, up from the current ₹1 crore in at least two of those years.
Companies that fail to meet the profitability criteria could still list via the book-building process, provided at least 75 per cent of the net offer is allocated to qualified institutional buyers.
These proposals come against the backdrop of rising SME IPO activity. As per B2K Analytics’ quarterly review, firms raised ₹3,791.67 crore through BSE SME and NSE Emerge in July–September 2026, almost double the ₹1,890.06 crore mobilised in the previous quarter. The number of SME listings jumped 111 per cent quarter-on-quarter to 80, with 51 issues listing at a premium, 19 at a discount and 10 at their offer price.
Supreme Court advocate Tushar Kumar stressed that reforms should not undermine investor trust. He said the effectiveness of the new framework will be judged less by the sheer number of additional listings and more by the quality of companies admitted and the level of confidence maintained among investors.
He added that robust safeguards, strong disclosure norms and effective monitoring will be essential to ensure that easier access to capital does not dilute investor protection.
Source: BusinessLine
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