SME IPOs Analyzed: A Rising Trend with Risks
A recent study by the Reserve Bank of India (RBI) has found a worrying pattern in Small and Medium Enterprise (SME) Initial Public Offerings (IPOs). Many of these IPOs see a big jump in price when they first come out, but then the price goes down quickly, leading to losses. This is especially true for IPOs that attract a lot of interest from ordinary people who invest in the stock market – known as retail investors.
Key Points
- SME IPOs often have big initial price gains followed by losses.
- Retail investors drive up prices when they show strong interest.
- Some companies are overvalued compared to their industry peers.
- Investors must carefully check a company’s finances before investing.
- Most SMEs are raising funds for growth and operational needs.
- Young investors are heavily driving the SME IPO market.
The study, written by Bhagyashree Chattopadhyay and Shromona Ganguly, explains that when there’s high demand for stocks and not enough shares to go around, prices often rise because investors compete to buy them. Retail investors, drawn by the idea of a quick profit, sometimes ignore important details about the company’s business, which makes the prices too high.
The study compared the price-to-earnings ratios of 100 SME companies listed in 2024 and 2025 to how their industry compares. About 20% of these companies were valued too highly, meaning their price was much higher than similar companies in the same business.
The study highlights that SME IPOs can be profitable when things go well, but they’re also risky, especially when the market is struggling. It’s crucial for investors to do thorough research on a company’s financial situation, how quickly it’s growing, and any potential dangers before putting their money into it.
The SME IPO market in India saw a big increase in 2024 and 2025, thanks to many people investing and a generally good market. From 2012 to 2017, the market grew significantly, with issuances rising from ₹7.25 crore to ₹824.64 crore. There were some slowdowns in 2018 and 2020 due to the pandemic, but activity picked up again.
A key reason for the excitement around SME IPOs was the growing number of young investors. In 2019, people under 30 made up 22.6% of the stock market investors, but by 2025, that number had grown to 38.9% – showing how many younger people are now investing.
Most SME IPOs in 2024 and 2025 were about companies raising new funds, making up over 90% of all IPOs. This shows companies are using the money for growth and for day-to-day operations instead of letting existing shareholders sell their shares.
The main reason SMEs raised money was for better finances (capital enhancement) or to cover operating costs. Some also used the funds to expand their business, buy new equipment, or reduce their debt – showing a focus on growth and stability.
Investing in SME IPOs requires careful analysis and a long-term perspective to mitigate potential risks.
