SEBI Proposes SME IPO Rules To Cut Minimum Application To ₹1 Lakh And Allow Single-Share Trading
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The proposed changes would lower the amount needed to apply for an SME IPO and allow investors to trade individual shares after listing. Companies would face a higher operating-profit test, with an alternative listing route requiring institutional investors to receive at least 75% of the net offer.
The Securities and Exchange Board of India (SEBI) has proposed cutting the minimum SME IPO application value to ₹1 lakh from ₹2 lakh and allowing investors to buy or sell individual shares after listing. In a consultation paper issued on Wednesday, October 14, 2026, the regulator also proposed increasing the minimum number of allottees to 500 from 200 and tightening the operating-profit requirement for companies seeking an SME listing.
The draft proposes changes to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018. Public comments are open until November 4, 2026, and the changes have not yet taken effect.
Companies would need average annual operating profit of at least ₹3 crore over the preceding three financial years. Those failing this test could still launch a book-built IPO if qualified institutional buyers receive at least 75% of the net offer. SEBI also proposes using a company’s market value after the IPO, rather than its paid-up capital, to determine its listing platform.
SME IPO Minimum Application And Trading Rules
Investors would apply for at least four lots, each worth at least ₹25,000, taking the minimum application value to ₹1 lakh. After listing, the trading lot would become one share, allowing investors to buy smaller quantities or sell part of their holdings.
The minimum number of investors receiving an allotment would rise to 500. Retail investors would receive at least one minimum lot, subject to availability, with the remaining shares allotted proportionately. Book-built issues could allocate up to 60% of the institutional portion to anchor investors.
SEBI has also proposed removing compulsory market making, under which a designated intermediary provides buy and sell quotes for SME shares. Mandatory underwriting of the entire IPO, including the lead manager’s obligation to underwrite 15%, would be replaced by the mainboard framework. Issues would need at least 90% subscription, while the compulsory institutional allocation under the alternative eligibility route could not be underwritten.
SME IPO Eligibility And Listing Rules
The proposed profit requirement would replace the current test of at least ₹1 crore in operating profit in two of the preceding three financial years. The new ₹3 crore annual average would be calculated using restated consolidated financial statements.
Companies using the alternative route would have to allot at least 75% of the net offer to qualified institutional buyers, or QIBs. Non-institutional investors could receive no more than 15% and retail investors no more than 10%. If the required QIB allocation is not achieved, the entire subscription money would have to be refunded. Other business and promoter eligibility requirements would continue to apply.
Under the proposed listing framework, companies valued at up to ₹1,000 crore after an IPO would have to use the SME platform. Those valued above ₹1,000 crore and up to ₹4,000 crore could choose SME or mainboard listings, subject to applicable requirements. Companies above ₹4,000 crore would use the mainboard. Issuers in the middle band choosing an SME listing would need financial statements prepared under Indian Accounting Standards.
The draft also proposes changes to share-sale and lock-in requirements. Shares offered through an offer for sale would generally need to have been held for one year, subject to exemptions. QIB selling shareholders could receive relief from existing OFS limits, although this would not apply to IPOs using the alternative profitability route.
Minimum promoter contribution would remain locked in for three years from allotment. Excess promoter holdings and promoter-group holdings would have a one-year lock-in, while other pre-IPO holdings would be locked in for six months. SEBI also proposes removing the ₹10 crore ceiling on IPO proceeds used for general corporate purposes, while retaining the limit of 15% of issue proceeds.
Eligible SME companies valued at ₹1,000 crore to below ₹4,000 crore could choose to migrate to the mainboard. Migration would become mandatory above ₹4,000 crore, subject to mainboard eligibility. Existing SME-listed companies would continue under the current migration framework. The draft also covers business continuity, changes in valuation during an IPO and transition arrangements for pending filings.
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This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
Rochelle Britto has spent 8+ years decoding India's markets, businesses, and consumer economy, reporting for ET Prime and Times Internet along the way, covering the stories behind the numbers.
A Mumbai native and perpetual planner of the next holiday, she stays far, far away from the eternal question, “Where are we going next?” When she's not chasing headlines, she's chasing new cultures, open roads, and a bit of quiet in nature.
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