SEBI SME IPO Proposal: Rs 3 Crore Profit Test, No Compulsory Market Making
The SEBI SME IPO proposal, set out in a consultation paper dated October 14, 2026, would raise the profit test for small-company listings and remove mandatory underwriting and market making. These are draft proposals, not final rules. Public comments are open until November 4, 2026, and no effective date has been set.
What SEBI proposes for SME IPOs
| Item | Current rule | Proposed rule | Status |
|---|---|---|---|
| Profit test | Operating profit of Rs 1 crore in two of three years | Average Rs 3 crore a year over three years | Draft |
| Underwriting | 100% underwriting; lead manager underwrites 15% | Removed; main-board approach for unsubscribed portion | Draft |
| Market making | Compulsory for three years, 5% inventory | Removed | Draft |
| Trading lot | Price-band-based lots | One share | Draft |
| Minimum application | Above Rs 2 lakh | Rs 1 lakh | Draft |
The paper also proposes an eligibility limit by post-issue market capitalisation. Issuers up to Rs 1,000 crore would list only on the SME platform, and those from Rs 1,000 crore to Rs 4,000 crore could choose. It also proposes an offer-for-sale framework with a one-year holding period.
Profit test and issuer quality
For firms that miss the profit threshold, the proposal reportedly allows an alternative route in which 75% of the offer is allotted to qualified institutional buyers. Tarun Singh, managing director and founder of Highbrow Securities, said the three-year average is the harder test because many companies show a sharp profit jump just before listing. He asked SEBI to define operating profit clearly, including depreciation, so asset-heavy manufacturers are not disadvantaged. Sandeep Gupta of Valmiki Leela Capital said fewer IPOs would not be a setback if issuers are better prepared.
Underwriting and market making
Underwriting fees were about 49.5% of issue expenses for NSE SME IPOs in FY25 and 38.4% in FY26, so removing the mandate could cut issuer costs. Gupta cautioned that underwriting still matters when demand falls short. Singh said underwriting was triggered in only four IPOs over three years.
On market making, Ritaban Basu, CEO of B2K Analytics, cited SEBI data showing market makers accounted for 0% to 10% of turnover in 361 NSE and 268 BSE SME stocks between August 2025 and July 2026. Experts said a one-share lot could ease trading, but ending market making could widen bid-ask spreads in thinly traded stocks.
SME IPO activity in 2026
B2K Analytics data show 158 SME IPOs raised Rs 7,542 crore in January to September 2026, against 183 issues and Rs 8,535 crore a year earlier. That is about 13.7% fewer issues and 11.6% less money raised. Average issue size was about Rs 47.7 crore in 2026, Rs 46.6 crore in 2025 and Rs 35.2 crore in 2024, based on 200 issues raising Rs 7,044 crore.
What to Watch
- November 4, 2026: deadline for public comments on the consultation paper.
- Any final SEBI board decision or amendment to the ICDR Regulations, which would set effective dates.
