New SME IPO rules come into effect from July 1; check details, expert views and more

The new SME IPO rules, introduced by the BSE Ltd and the National Stock Exchange of India (NSE), came into effect from Tuesday, July 1, 2025. The new rules have been announced to enhance transparency and reduce speculative retail participation in the wake tightening scrutiny by the market bodies.

In the new rules, the minimum application size is now two lots, valued over Rs 2 lakh, replacing the earlier lower thresholds that allowed smaller retail investments. This applies across all categories. Similarly, the cut-off price option has been removed, along with the ability to cancel or revise bids downward, enforcing greater price discipline.

Besides this, bidding for SME IPOs shall close at 4:00 pm on the final day, with UPI mandate confirmations due by 5:00 pm, tightening the process. Listing bound SMEs to have a minimum Ebitda of Rs 1 crore for two of the last three years, cap the offer-for-sale at 20 per cent of the issue size, and limit general corporate purpose funds to 15 per cent of the issue or Rs 10 crore.

By increasing the minimum ticks size, it now ensures that only serious investors take part and casual bidders are filtered out. SME stocks can be more risky and volatile, so this change actually helps protect investors from getting into something without proper research, said Kresha Gupta, Director & Fund Manager at Steptrade Capital.

"Many investors would select the cut off simply to increase their chances of allotment, assuming that the discovered price would be justified. But that approach ignores the importance of pricing discipline. Stricter timelines help bring more discipline and reduce last minute issues like delayed allotments or payment failures," she adds.

SME companies are rushing to launch IPOs before the new rules came into effect to leverage over the previous relaxed norms, more lenient system, which allows broader retail participation and lower entry barriers. As many as 30 SME IPOs were launched in the month of June 2025, raising more than Rs 1,380 crore.

The SME IPO segment in India has seen an extraordinary surge in listings, with heightened investor participation and buoyant market conditions propelling many small businesses to tap public markets. However, this rapid growth has also exposed regulatory gaps, prompting SEBI to tighten norms, said Narinder Wadhwa, MD and CEO at SKI Capital Services.

"A slew of recent enforcement actions highlight systemic risks stemming from poor governance, inflated valuations, and misuse of market mechanisms. Exchanges have now issued a stricter regulatory framework for SME IPOs. The revised guidelines are aimed at restoring investor confidence by ensuring that only credible and fundamentally sound companies access the SME platform," he said.

The dual bidding system (existing and new) is available for IPOs opening on or before June 30, with a spillover period until July 11, after which only the new rules apply, pushing companies to act swiftly.

Wadhwa said that the move could temporarily slow the pace of listings, it is a necessary corrective step to promote healthy capital formation. Overall, the new SME IPO norms, backed by recent enforcement actions, mark a crucial step toward maturing the SME market into a more transparent, stable, and investor-friendly platform, he added.