Context:
While the mainboard IPO market has slowed down significantly due to market volatility and cautious investor sentiment, SME-IPOs continue to thrive. The resilience of the SME segment reflects a shift in investor preference towards smaller, high-growth companies that offer promising returns despite broader market challenges.
SME vs. Mainboard IPOs: 2024 Trends
| Month | SME IPOs | Funds Raised (₹ Cr) | Mainboard IPOs | Funds Raised (₹ Cr) |
|---|---|---|---|---|
| January | 20 | 880 | 6 | 4,845 |
| February | 20 | 930 | 3 | 10,878 |
| March (as of March 11) | 6 | 170 | 0 | 0 |
SME IPO Market: Yearly Growth
| Year | No. of Issues | Funds Raised (₹ Cr) |
|---|---|---|
| 2018 | 141 | 2,287 |
| 2019 | 51 | 624 |
| 2020 | 27 | 159 |
| 2021 | 59 | 746 |
| 2022 | 109 | 1,875 |
| 2023 | 182 | 4,686 |
| 2024 (YTD) | 240 | 8,761 |
Why Are SME IPOs Gaining Momentum?
- Investor Appetite for High-Growth Companies
- SMEs, often in emerging sectors, present high-growth opportunities that attract investors willing to take calculated risks.
- The retail investor base, particularly in Tier 2 and Tier 3 cities, is increasingly participating in SME IPOs, fueling demand.
- Easier Market Entry & Regulatory Support
- SME listing requirements are less stringent compared to mainboard IPOs, making it easier for companies to raise funds.
- Recent regulatory reforms by SEBI, including restrictions on Offer-for-Sale (OFS) and profitability requirements, aim to enhance transparency while supporting strong SME listings.
- Liquidity & Strong Listing Gains
- Many SME IPOs have delivered impressive post-listing returns, encouraging more retail and institutional participation.
- Despite lower liquidity compared to mainboard stocks, SME IPOs are seen as lucrative investment avenues in the current market.
- Cautious Approach by Mainboard Companies
- Larger companies are delaying IPO plans due to market volatility, higher interest rates, and valuation concerns.
- Investors remain selective about mainboard IPOs, focusing on profitability and sustainability rather than mere growth prospects.
What This Means for the Broader Market
- The continued success of SME IPOs suggests that investor confidence remains intact, albeit directed towards smaller, more agile businesses.
- If market conditions stabilize, mainboard IPOs could see a revival, but for now, SMEs remain the dominant players in the primary market.
- The growing participation of retail investors in SME IPOs could lead to deeper market penetration and a more diverse investor base.
Outlook
The current SME IPO boom is driven by a combination of regulatory ease, strong investor interest, and market adaptability. However, whether this trend sustains depends on broader economic conditions and how mainboard companies respond to evolving investor expectations.
Source: BS
