In the landscape of Initial Public Offerings (IPOs), one document plays a pivotal role before a company can offer its shares to the public—the Draft Red Herring Prospectus (DRHP). Mandated by the Securities and Exchange Board of India (SEBI), the DRHP is a prerequisite for any company seeking to go public. For both investors and issuing companies, a clear understanding of the DRHP is crucial—it can be the difference between making an informed investment and facing costly missteps. This article aims to demystify the DRHP, highlight its significance, and guide readers on how to interpret it effectively.

What is DRHP?

The Draft Red Herring Prospectus (DRHP) is a formal declaration of a company’s intent to initiate an Initial Public Offering (IPO). It marks the commencement of the regulatory process and signals to the market that the company is committed to going public. Prepared in collaboration with a consortium of professionals—including merchant bankers, legal advisors, and auditors—the DRHP is meticulously crafted to ensure full compliance with SEBI’s Issue of Capital and Disclosure Requirements (ICDR) Regulations.

Why DRHP is Important in IPOs?

For Corporates (Issuing Companies)

• Regulatory compliance: Filing a Draft Red Herring Prospectus is a statutory requirement under SEBI regulations for any company intending to launch an IPO. It ensures that all mandated disclosures are made transparently, and no public offering can legally proceed without it
• Fundraising transparency: The DRHP outlines the estimated capital the company seeks to raise and provides a detailed breakdown of its intended utilization—whether for business expansion, debt repayment, working capital needs, or other strategic purposes. This fosters transparency and helps investors understand the financial rationale behind the IPO.
• Building investor trust: By disclosing comprehensive information on Risk Factors, Promoter and Management credentials, Industry outlook, and Restated Audited Financials, the DRHP serves as a trust-building instrument.
• Importance for SMEs and Startups: For SMEs and startups, the DRHP provides a structured framework for accessing capital markets and demonstrates commitment to regulatory standards, which is essential for attracting prospective investors and ensuring fair price discovery.

For Investors

• Due diligence tool: Investors scrutinise the DRHP to understand business operations, financial health (Balance Sheet, Profit & Loss, Cash Flows), governance, promoter track record, and potential pitfalls.
• Risk assessment: DRHP includes risk factors (market, regulatory, litigation, etc.) which are crucial for evaluating whether the IPO is suitable for one’s risk appetite.
• Comparative analysis: Because DRHPs are published early, they allow investors to compare several IPOs, their industries, and financial metrics before the IPO price is set.
• Material Litigations : The DRHP also provides and Insights of the Material litigation  be it Civil, Criminal, Tax Related or any other contingent LIability.

Key Sections of a DRHP You Must Read as an Investor

A DRHP is a lengthy document and knowing which sections to focus on can save you time and help you extract the most critical information out of it.

1. Risk Factors: This is arguably one of the most important sections for any potential investor. This Section of the DRHP explains the risks associated with business, regulatory, and industry. This section is essential for understanding potential challenges and downside scenarios. 
2. Business Overview: This section explains the company’s business model, what products or services it offers, its competitive advantages, and its standing in the industry. This section gives an insight of business history, model, future growth prospects, and core activities, helping investors understand the company’s foundation and market position.
3. Financial Information: This section includes Restated Audited Financial Statements, Revenue, Profitability, Debt Levels, Cash Flows, Working Capital Projections and Key Performance Indicators (KPI), which are vital for analysing the company’s financial health and viability to understand the company’s past performance and future outlook
4. Objects of the Issue: This section is vital for understanding how your investment will be used and if the company’s plans align with a sustainable growth strategy. The investor get clarity on purpose for raising funds with specific breakdowns for debt repayment, Capital Expenditure, Working Capital or any other Object which is allowed as per the regulations.
5. Promoters and Management: This section provides details about the company’s founders, directors, and key management personnel, including their experience, qualifications, and any past legal issues. It helps you assess the credibility and capability of the team running the company.
6. Industry Overview: The DRHP includes an analysis of the company’s industry. This section provides context on the market size, growth trends, and the competitive landscape. It helps you understand the bigger picture and how the company fits within its sector.
7. Legal and Regulatory Matters: This section of the DRHP covers litigations, disputes, and regulatory issues that could materially impact business operations or finances.

Final Thoughts

The DRHP is more than a regulatory requirement, it is a window into a company’s financial health, growth potential, and risks. For companies, it builds credibility; for investors, it enables informed decision-making.

Frequently Asked Questions

1. What is the main difference between a DRHP and a RHP?

A DRHP (Draft Red Herring Prospectus) is the initial, draft version of the prospectus filed with SEBI. It is a preliminary document and does not contain the final issue price or the number of shares to be offered. The RHP (Red Herring Prospectus) is the final version with necessary changes as required and filed after SEBI’s approval.

2. Why should retail investors read the DRHP?

It helps them understand the fundamentals of the company, assess risks, verify financial statements, see how funds will be used, and compare valuation relative to peers. This makes investing in IPOs more informed and less speculative.

3. Where can I find a company’s DRHP?

A company’s DRHP is a public document. You can easily find it on the official website of SEBI (sebi.gov.in) under the “Public Issues” section. It’s also available on the websites of the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE), as well as on the websites of the lead merchant bankers for the IPO and company itself.

4. What is the validity period of a DRHP?

Once SEBI issues its observations and gives its approval, the company has 12 months to launch the IPO. If the IPO is not launched within this period, a new DRHP must be filed with updated information.

5. What are some red flags to look for when analyzing a DRHP?

A few red flags to watch for in a DRHP include: a history of significant losses, a high level of debt, revenue concentration from a single customer, pending legal disputes or regulatory issues, and the use of IPO proceeds to pay off existing promoters instead of for business growth. The “Risk Factors” section is the best place to uncover these potential issues. 

With increasing regulatory scrutiny, ethical disclosures and investor trust have become non-negotiable. Compliance is no longer a support function; it has evolved into a strategic anchor. And women are fast becoming its trusted custodians. As a Company Secretary and Compliance Officer at Gretex Corporate Services Limited, I’ve had the privilege to witness this shift up close, especially in the capital markets space where regulation, and ethics are the core pillars of progress.

The Rise of Women in Compliance in India’s Finance Sector

Early in my career journey, navigating IPO  processes in male-dominated rooms demanded more than knowledge; it required presence, precision, and resilience. Today, I see more women stepping up not just with answers, but with authority. Recent findings from the Secretarial Audit Reports: Trends and Practices (2016) reaffirm what we’ve been witnessing from within boardrooms and regulatory frameworks: the corporate secretarial domain is gradually opening up to women.

 “16% of S&P BSE 500 companies had Women Company Secretaries, reflecting a 4% jump from the previous year. Additionally, 10% of the Secretarial Audit Reports were signed by women, marking a 1% year-on-year increase. While these may seem like modest shifts, they indicate a deeper, more sustainable trend: women are not just participating in compliance, they are leading it”. 

Why does this matter? Because, it’s the strategic backbone of every IPO, merger, fundraiser, and investor decision. The diverse perspectives women bring, especially in risk assessment, governance, and ethical decision-making, are adding incredible value. 

Why Compliance Is The New Catalyst in Finance

When we guide companies through the IPO process at Gretex Corporate Services, compliance is not just a requirement; it is the cornerstone. From preparing the Draft Red Herring Prospectus (DRHP) to ensuring seamless coordination with SEBI, exchanges, and registrars, the compliance function drives:

• Transparent disclosures
• Timely legal clearances
• Statutory documentation and due diligence
• Governance frameworks post-listing

This requires the highest level of integrity, detail orientation and legal foresight, qualities that are now being increasingly delivered by women in the profession.

If I talk about my journey as a Compliance Officer for IPO execution, my responsibility is to ensure that, “The company’s capital market journey is legally sound, regulatorily compliant, and investor-trust centric”. And I can confidently say that women in compliance today are no longer confined to support roles as they are becoming decision-makers, process owners, & leads in IPO mandates.

Gretex Initiatives Empowering Women in Compliance

Early evidence suggests that firms with higher gender diversity in compliance roles report fewer regulatory lapses and enjoy deeper strategic partnerships with institutional investors. At Gretex, we are dedicated to broadening the pipeline and expanding the reach of India’s next generation of compliance experts.

Our internal hiring practices ensure a fair representation of women across all verticals including legal, compliance, secretarial, and documentation teams. We actively partner with academic institutions to identify high-potential women CS candidates and offer an exclusive internship program ‘‘Catalyst Connect’ to hire fresh talent and foster long-term careers. 

In fact, “Several of our IPO mandates have been led by women professionals who not only managed due diligence but also handled investor communications and regulatory interface with finesse”. 

Future Outlook: Compliance and Finance Leadership

As India’s capital markets continue to mature, the demand for incisive, transparent, and empathetic regulation leadership will only grow. “To every aspiring woman in compliance: master your subject, trust your judgment, and never shy away from speaking up in high-stakes rooms. Your voice adds value, and your presence shapes the future of governance”. 

Now, the financial markets prepare for deeper integration with global financial systems, the expectations from compliance professionals will only rise. Let us ensure that the next wave of compliance leadership is not just inclusive but also inspiring.

In closing remarks, we invite fellow compliance officers, board members, and investors to join us in championing gender diversity not as an afterthought but as a strategic imperative. After all, when half the talent pool is fully empowered, India’s capital markets can realize their greatest potential.

Edited and insights provided by Ms. Bhavna Desai, Company Secretary & Compliance Officer, Gretex Group, whose expertise and commitment to regulatory excellence continue to guide our practices with integrity and precision.

The SME capital market is evolving—and so are its regulatory frameworks. In a significant step towards enhancing investor protection, improving transparency, and streamlining the bidding mechanism, the National Stock Exchange of India (NSE) has issued a circular (Ref. No: NSE/IPO/68604) that outlines the revised SME IPO Rules, as directed by the Securities and Exchange Board of India (SEBI). 

NSE updates SME IPO bidding rules: higher minimum bid size, new timing rules, and key procedural changes to streamline participation and compliance. These changes are aligned with the amendments made to the SEBI (Issue of Capital and Disclosure Requirements) (ICDR) Regulations, 2025, and will be effective for all SME IPOs opening on or after July 1, 2025.  

Detailed Overview of the New SME IPO Rules

Here’s a detailed breakdown of the revised bidding norms applicable to all SME IPOs from July 1, 2025:

1. Introduction of ‘Individual Investor’ Category in SME IPOs

One of the most notable changes is the replacement of the Retail Individual Investor (RII) category with a newly defined Individual Investor category.

Under the new definition:

• An Individual Investor is one who applies for a minimum of 2 lots.
• The minimum application amount must exceed ₹2 lakhs.
• This effectively reclassifies many retail applicants into a higher investment bracket, changing the access structure of SME IPOs significantly.
• This move will encourage more serious, long-term retail participation in the SME segment.

2. Cut-Off Price Option Discontinued in SME IPO Bidding

The Cut-off Price facility — a popular bidding choice among retail investors in the mainboard IPOs — will now no longer be available in any bidding category for SME IPOs.

This means:

• Investors must explicitly mention the price at which they wish to apply.
• There will be no automatic price alignment with the discovered issue price.

This brings enhanced price discovery transparency and demands greater awareness and preparation from investors before placing bids.

3. Restriction on Bid Modification and Cancellation Under SME IPO Rules

Under the updated SME IPO rules, downward modification and cancellation of bids will no longer be permitted across all categories.

This provision aims to:

• Reduce speculative bidding behavior.
• Ensure more committed and planned participation.
• Streamline the final subscription figures more effectively.

4. Revised Timelines for Bidding and UPI Mandate Confirmation for SME IPOs

To tighten operational efficiency, new timelines have been introduced:

• Bidding will close at 4:00 PM on the last day for all investor categories.
• UPI mandate acceptance will be available till 5:00 PM on the same day.

These defined deadlines will improve the synchronization between exchanges, intermediaries, and payment systems, ultimately ensuring a smoother settlement process.

5. SME IPO Norms for Reserved Categories

The new SME IPO rules also update norms for reserved investor segments:

• Employees, Shareholders, and Policyholders must apply for a minimum of 2 lots (above ₹2 lakhs).
• For employees, bids should not exceed ₹5 lakhs and must be in multiples of the lot size.

This brings uniformity and alignment across all preferential investor groups.

6. Updated Application Size for QIBs and NIIs in SME IPOs

Qualified Institutional Buyers (QIBs) and Non-Institutional Investors (NIIs) must now apply for more than 2 lots, reflecting the regulator’s intent to position the SME IPO platform for more significant and strategic participation.

Impact of the New SME IPO Rules on Issuers and Investors

What SME Should Know

• The new SME IPO rules streamline the bidding framework, making the process more predictable and investor-friendly.
• Issuers can expect better price discovery and improved participation from serious investors.
• Reduced cancellations and downward modifications mean greater stability in the IPO process.

What Investors Must Consider

• The clear definition of Individual Investors and minimum bid sizes discourages speculative bidding.
• Removal of cut-off price bids promotes active price discovery, benefiting genuine investors.
• Reserved categories benefit from well-defined bidding limits.
• Institutional and Non-Institutional investors will have to comply with higher minimum application sizes, ensuring quality bids.

Preparing for SME IPOs Under the New Norms

SME companies planning to go public need to align their strategies with the revised SME IPO rules. Investors are advised to familiarize themselves with the new bidding process to optimize their application strategies under the changed norms.

Why the New SME IPO Rules Matter for India’s Capital Market?

The SME IPO rules effective July 1, 2025, mark a pivotal shift in India’s SME capital market landscape. These changes aim to create a more transparent, efficient, and disciplined bidding process, fostering better outcomes for issuers and investors.

Source Links

https://economictimes.indiatimes.com/markets/ipos/fpos/nse-changes-bidding-rules-for-sme-ipos-from-july-1-check-details-here/articleshow/121948498.cms?from=mdr

Financial due diligence (FDD) is a comprehensive evaluation of a company’s financial health, conducted before engaging in significant transactions such as IPOs, mergers, acquisitions, or investments. This process involves scrutinizing financial statements, assessing assets and liabilities, and understanding cash flows to ensure informed decision-making and risk mitigation.

Businesses conduct financial due diligence before making major financial decisions, such as investments, mergers, acquisitions, or partnerships. It is a thorough investigation of a company’s financial health to ensure there are no hidden liabilities. Careful evaluation helps you to make an informed decision and avoid unexpected problems.

Why is Financial Due Diligence Important?

Financial due diligence (FDD) helps businesses identify potential financial risks, validate financial statements, & ensure that they are making sound investment decisions.

Here’s why it is crucial:

• Risk Identification: Uncovers hidden debts, liabilities, or financial inconsistencies that could impact profitability.
• Valuation Accuracy: Ensures the business is valued correctly and prevents overpayment.
• Regulatory Compliance: Checks whether the company adheres to financial and tax regulations.
• Strategic Decision Making: Provides a clear picture of financial strengths and weaknesses.
• Investment Protection: Helps investors safeguard their money by assessing financial sustainability

The Process of Financial Due Diligence: The due diligence process typically involves:

• Reviewing Financial Statements: Examining past financial records (balance sheets, income statements, cash flow statements) to assess profitability and revenue trends.
• Assessing Liabilities: Checking outstanding debts, pending lawsuits, and tax obligations.
• Evaluating Revenue and Profit Margins: Analyzing how the company generates profits and whether they are sustainable.
• Analyzing Cash Flow: Ensuring the business has healthy cash flow to meet operational needs.
• Industry and Market Position Analysis: Comparing financial performance with competitors and understanding market risks.

Company A either negotiates a better deal, demands corrective actions, or walks away from the transaction to avoid financial loss.

Let’s Understand by Zomato – Blinkit’s Merger & Acquisition

A recent example is Zomato’s acquisition of Blinkit (formerly Grofers). Before acquiring Blinkit, Zomato conducted financial due diligence to assess the company’s revenue model, debt obligations, and market potential. By evaluating Blinkit’s financial health, Zomato ensured that the acquisition aligned with its long-term business strategy. This due diligence process helped Zomato mitigate financial risks and make an informed investment decision.

Benefits of Financial Due Diligence

• Prevents Financial Loss: Identifies financial risks that could lead to losses.
• Ensures Transparency: Provides accurate insights into a company’s true financial condition.
• Facilitates Better Negotiations: Helps buyers and investors negotiate better terms.
• Strengthens Investor Confidence: Investors feel more secure when they have a clear understanding of a company’s financial health.
• Regulatory Compliance: Ensures adherence to tax and legal requirements, avoiding legal troubles.

Conclusion

Financial Due Diligence is an essential risk-management tool for businesses and investors. Whether you’re investing in a company, acquiring a business, or preparing for an IPO, due diligence ensures that your financial decisions are backed by verified data. It minimizes risks, improves deal transparency, and enhances investor confidence. If you’re considering an investment or a business transaction, connect with financial experts to ensure financial clarity and confidence in your deals.

This blog has been thoughtfully curated by Mr. Pradip Agrawal, President – FRA, Gretex Corporate Services Limited, leveraging his deep industry expertise to guide businesses through critical financial transitions

In today’s fast-paced financial world, IPOs (Initial Public Offerings) have become an essential route for businesses looking to raise capital and expand. However, the landscape of IPOs is not monolithic; there are different types of IPOs available depending on the size, and goals of the business. Two major types of IPOs are Mainboard IPOs and SME IPOs. 

What is a Mainboard IPO?

A Mainboard IPO is aimed at larger companies that meet specific eligibility criteria set by SEBI and the respective stock exchanges (NSE and BSE). The companies opting for mainboard IPOs are typically large corporations with a higher market capitalization, often exceeding ₹500 crore.

What is an SME IPO?

SME IPOs are designed for small and medium enterprises that need funds to to scale but may not fulfill the strict regulatory requirements of a Mainboard listing. The SME platform on NSE (NSE Emerge) and BSE (BSE SME) allows these businesses to go public with relatively relaxed norms.

Now that we have a basic understanding of both types of IPOs, let’s dive into the difference between mainboard IPO and SME IPO across various dimensions:

Major Differences Between Mainboard IPO and SME IPO

Factor	MainBoard IPO	SME IPO
Company Size	Large-scale companies	Small and medium scale enterprises
Stock Exchange	NSE and BSE	NSE Emerge & BSE SME
Minimum Post-issue Paid-up Capital	Rs. 10 Cr or above	Between Rs. 1 Cr – Rs. 10 Cr
IPO Size	Typically above Rs.25 Cr	Can be as low as Rs. 2-3 Cr
Underwriting	Optional	100% Underwriting is mandatory, with  merchant banker underwriting 15%
Market Making	Not Required	Mandatory for 3 years
Investor Eligibility	Widely participated by institutional, retail, and HNI investors	Mostly retail and HNI investors
Due Diligence	Comprehensive	Focused and streamlined
Minimum Application Size	As low as ₹10,000 to ₹15,000 for retail investors	Typically ₹1,00,000 or more due to larger lot sizes
Investor Requirement	Requires minimum 1,000 investors	Requires minimum 50 investors
Reporting Timelines	Financial reports must be presented every 3 months	Financial reports must be presented every 6 months

Which IPO is the Right Option for Businesses?

For businesses, the choice between a Mainboard IPO and an SME IPO largely depends on their size, growth stage, and capital requirements.

• Mainboard IPO:  This is typically the ideal choice for established, larger companies that are seeking to raise substantial capital for significant growth initiatives or expansion. A Mainboard IPO helps a company attract a broad investor base and ensures higher liquidity in the market. The listing process involves stringent vetting and due diligence to ensure the company meets all regulatory norms.
• SME IPO:  Smaller companies and startups in their growth phase might consider an SME IPO as a viable option. While the capital raised is relatively smaller, an SME IPO offers flexibility and fewer regulatory requirements. Additionally, listing on an SME platform opens the door for companies to build their reputation, gain investor interest, and potentially scale their operations in the future.

Which IPO is the Right Option for Investors?

For investors, the choice between Mainboard and SME IPOs depends on their risk tolerance and investment goals.

• Mainboard IPO: Ideal for conservative investors looking for stability and lower risk.
• SME IPO: Suitable for investors with a higher risk appetite seeking higher returns from emerging businesses

Final Thoughts

In conclusion, understanding the difference between mainboard IPO and SME IPO is crucial for both businessmen looking to list their companies and investors seeking new opportunities. Mainboard IPOs are suited for large, well-established companies with a strong financial track record, while SME IPOs cater to smaller, high-growth companies looking to tap into capital markets with a lower entry barrier. Both platforms offer unique opportunities, but they come with their own set of challenges and benefits. By assessing your company’s profile or investment goals, you can make a more informed decision about which route to take.

Sources: 

https://www.chittorgarh.com/book-chapter/sme-ipo-introduction/8/

https://www.indiainfoline.com/knowledge-center/ipo/difference-between-mainboard-ipo-sme-ipo

As an entrepreneur, you’re always looking for ways to take your business to the next level. But what if the next big step involves tapping into a much larger pool of capital to fund your growth? That’s where an IPO (Initial Public Offering), comes in. It’s a term that many entrepreneurs and investors have heard of, but few fully understand. In this blog, we will understand what is IPO, types of IPOs, and most importantly, how it works for your business. By the end of this blog, you’ll have a clear understanding of how an IPO can potentially help your business expand and how you can prepare for it. Let’s dive in!

 

What is an IPO? Types of IPO and How it Works?

An Initial Public Offering (IPO) is when a private limited company registered with the ROC in India offers its shares to the public for the first time. In simple terms, consider it as a business opening its doors to the public, allowing people to buy ownership of the company through shares. In this transaction, the business gets the funds it needs to expand, and the buyers (investors) get a stake in the company, hoping it will perform well and make a profit.

The company that conducts the IPO becomes listed on a stock exchange, such as the National Stock Exchange (NSE) or Bombay Stock Exchange (BSE) in India. Once listed, the company’s stock can be bought and sold freely by the public, giving it liquidity and visibility in the market.

Book Building IPO Vs Fixed Price IPO: Understanding Different Types of IPOs

Understanding the types of IPOs can help investors make informed choices when a company goes public. The two main types are:

Fixed Price IPO

In a Fixed Price IPO, the company and its underwriters predetermine a specific price at which the shares will be offered to the public. Investors know this price in advance and can decide to buy shares based on this fixed rate. The success of a Fixed-price IPO is measured by analyzing the demand for shares at the set price.

Example: If a company sets the IPO price at ₹100 per share, investors know exactly how much they’re paying per share.

Book Building IPO

In a Book Building IPO, the share price is set within a price range rather than a fixed amount. Investors place bids within this range, specifying the number of shares they’re willing to buy and the price they’re ready to pay. Based on the demand and bids received, the final price is set, commonly referred to as the “cut-off” price. This type of IPO is more flexible and allows the company to gauge investor demand.

Example: If the price range is set between ₹90 and ₹120, investors may bid at different points within this range, and the final price depends on demand.

How Does it Work for Your Business?

Let’s walk through the entire IPO process, step-by-step, with a simple example. Consider a hypothetical company, ABC Solutions, a startup in the tech industry that needs capital to expand. The founders decide to take the IPO route to raise funds.

Step 1: Appoint a Merchant Banker (IPO Lead Manager)

The first step for ABC Solutions is to hire an expert Merchant Banker with a proven track record (such as Gretex Corporate Services Limited) to manage the IPO. The Merchant Banker’s role is to guide the company through the IPO process, including assisting in determining the share price, and the amount to be raised, and handling all legal requirements. 

Step 2: Regulatory Approvals and Documentation

Next, the Merchant Banker helps prepare documents for regulatory approval. In India, companies must file a Draft Red Herring Prospectus (DRHP) with the Securities and Exchange Board of India (SEBI). This document provides details about the company’s financials, the IPO structure, and how the raised funds will be used. SEBI reviews these documents to protect investor interests and ensure transparency.

Step 3: Setting the Price Range or Fixed Price

Once the approval is in place, ABC Solutions and its Merchant Banker will decide on the IPO pricing model. Suppose they choose a book-building approach with a price range of ₹100-120 per share. Potential investors can then place bids within this range.

Step 4: Marketing the IPO

Promoting the IPO is a crucial step. Roadshows, media coverage, and advertisements help build interest among institutional investors and the general public. This marketing phase is essential to create a buzz and attract potential investors.

Step 5: Subscribing to the IPO

Now, investors can apply for shares by submitting bids during the subscription period. Institutional investors, retail investors, and qualified institutional buyers (QIBs) participate in this stage. If the demand for shares is high, the IPO may become oversubscribed, which means more bids are received than the number of available shares.

Step 6: Share Allotment

After the subscription period closes, the final price is set (if it’s a book-built IPO). The allotment process begins, where shares are distributed to successful applicants. Investors may receive fewer shares than they applied for if the IPO is oversubscribed.

Step 7: Listing on the Stock Exchange

Once shares are allotted, ABC Solutions is officially listed on the stock exchange, such as the NSE or BSE. The shares begin trading, and the public can buy or sell them on the open market. The listing day often sees fluctuations in the stock price as market demand and sentiment take over.

Is an IPO Right for Your Business?

In essence, an IPO is the bridge connecting private business aspirations with public investment opportunities, a tool that has powered many successful companies’ growth. By going public, a company opens itself to a broader investor base and gathers funds to fuel its expansion. While large corporations dominate IPO news, there is an increasing trend for small and medium-sized enterprises (SMEs) to explore IPOs, due to their innovative financial platforms and supportive policies. 

The SME (Small and Medium Enterprises) IPO platform in India has been a game-changer for smaller businesses seeking funding. Since its launch in 2008, hundreds of companies have raised capital and grown through public listings. However, the rapid growth has also brought challenges. The Securities and Exchange Board of India (SEBI) is rolling out new rules to protect investors and ensure market integrity. From revised profitability criteria to promoter lock-in periods to fund utilization rules, SEBI’s new norms for SME IPO create a more robust ecosystem for SMEs.

Let’s break down the present scenario & understand SME IPO norms, key changes, and their significance in the capital market.

 

The Rise of SME IPOs in India

In 2024, the SME IPO segment saw exceptional growth, with 243 companies listed on NSE Emerge and BSE SME. The momentum continues in 2025, with 28 SME IPOs already listed. This surge highlights the increasing investor interest in SMEs, as numerous offerings have attracted significant subscriptions and delivered impressive listing gains, marking a milestone for the sector’s expansion.

SEBI’s recent measures aim to strengthen investor protection and market integrity by addressing key areas such as SME IPOs, insider trading regulations, and merchant banking norms.  

Key Changes to SEBI Norms for SME IPOs: A Simplified Explanation

SEBI’s new guidelines are designed to strengthen trust in SME IPOs. By addressing common concerns including insider trading and illiquidity, these rules will create a more reliable ecosystem for small businesses and investors. Here’s a breakdown of the key changes:

Key Change 1: Profitability Criteria for SME IPOs

• Existing Norms: The company should be profitable to qualify for an IPO.
• New Norms: The company can launch an IPO only if it has an operating profit (EBITDA) of ₹1 crore or more in at least 2 out of the last 3 financial years before filing the DRHP.
• Why It Matters: Demonstrates sustainable business operations and reduces risk for investors, leading to increased confidence.

 

Key Change 2: Offer for Sale (OFS) Restrictions

• Existing Norms: No restriction on the offer for sale.
• New Norms: 1. OFS portion is limited to 20% of the issue size. Selling shareholders cannot sell more than 50% of their shareholding.
• Why It Matters: It prevents a flood of shares from insiders post-IPO, stabilizes the stock price, and protects public investors.

 

Key Change 3: Promoter Lock-in Period

• Existing Norms: Minimum promoter contribution (MPC) is locked for 3 years, excess holding, and 1 year post-IPO.
• New Norms: Phased release of lock-in for promoter holdings more than MPC:  50% of excess holdings released after 1 year Remaining 50% after 2 years
• Why It Matters: Aligns promoter interests with long-term company performance, fostering trust and encouraging sustainable growth.

 

Key Change 4: Loan Repayment Prohibition

• Existing Norms: No specific provision.
• New Norms: SME IPO proceeds cannot be used to repay loans taken from promoters, promoter groups, or related parties.
• Why It Matters: Ensures IPO funds are used for business expansion and growth, maximizing shareholder value creation.

 

Key Change 5: Allotment Process for Non-Institutional Investors

• Existing Norms: NII allotment is done on a proportionate basis.
• New Norms: NII allocation will now follow the Draw of Lots method, ensuring fairness and transparency like Main Board IPOs.
• Why It Matters: Creates a level playing field for NIIs, increasing participation and broadening the investor base.

 

Key Change 6: Related Party Transactions (RPT) Norms

• Existing Norms: Mainboard norms did not apply.
• New Norms: Mainboard norms now apply, with RPT considered material if it is 10% of turnover or Rs.50 Cr (whichever is lower).
• Why It Matters: Enhances transparency and reduces potential conflicts of interest, promoting better corporate governance.

 

Key Change 7: Cap on General Corporate Purpose (GCP)

• Existing Norms: Funds allocated for GCP cannot exceed 25% of the total funds raised.
• New Norms: Funds allocated for GCP cannot exceed 15% of the total funds raised or ₹10 crore, whichever is lower.
• Why It Matters: Directs funds towards core business activities and expansion plans, improving capital efficiency.

 

Key Change 8: Public Review of DRHP

• Existing Norms: No specific provisions.
• New Norms: Draft Red Herring Prospectus (DRHP) for SME IPOs must be made available for public comments for 21 days, along with a public announcement in newspapers and a QR code link.
• Why It Matters: Encourages informed investment decisions through increased transparency and public scrutiny of the DRHP.

 

What’s Unchanged?

• The 1-year norm on NSE Emerge & BSE SME platforms remains in place.
• There are no restrictions on issue size.
• Existing norms concerning financials and disclosures continue to apply.

 

Proposed Additions (Consultation Stage)

• A cooling-off period of a full financial year for recently converted private limited companies.
• Minimum issue size proposed at ₹10 crores.
• Mandatory appointment of a monitoring agency to oversee fund utilization.

 

SEBI Streamlined Regulations for Merchant Bankers 

SEBI has introduced new regulations for merchant bankers, categorizing them based on net worth. SEBI Registered Category 1 Merchant Banker, with a net worth of ₹50 crore or more, can undertake all SEBI-regulated activities. Category 2 Merchant Banker, with a net worth of ₹10 crore, faces restrictions, notably excluding equity mainboard issues. merchant bankers must also separate permitted and non-permitted activities, potentially hiving off the latter into a separate legal entity within two years, ensuring greater focus and regulatory compliance.

 

Looking Ahead: A Safer Future for SME IPOs

SME platforms have become a preferred route for small businesses to raise capital. The SME platform has immense potential, and SEBI’s reforms are designed to protect this potential while addressing the challenges. 

These changes signal the need to focus on governance and transparency and bring greater trust in the SME market. Together, these reforms pave the way for a more robust and reliable ecosystem for SME IPOs.

 

Data References: 

https://www.ipoplatform.com/blogs/2024-review-record-breaking-year-for-ipos-in-india-and-future-outlook-for-2025/151

https://www.ipoplatform.com/list-of-sme-ipos

https://www.thehindubusinessline.com/markets/sebi-tightens-norms-for-sme-ipos-investment-bankers/article69001820.ece

(Source: Key Amendments Approved in SEBI’s Board Meeting – Mumbai, 18th December 2024)

(Link to the Source: https://www.sebi.gov.in/media-and-notifications/press-releases/dec-2024/sebi-board-meeting_90042.html)

 

Union Budget 2025: A Blueprint for Viksit Bharat

 

The Union Budget 2025-26, presented by Finance Minister Nirmala Sitharaman, lays out the government’s vision for India’s economic future. The Budget 2025 focuses on accelerating growth, inclusive development, boosting private investment, and empowering the middle class section. Let’s understand the key highlights in a simple question-and-answer format, designed to help you effortlessly get the essence of this crucial economic document. Let’s dive into the details of the Blueprint for Viksit Bharat: 

What is the core theme of Union Budget 2025-26?

This budget’s core theme is “Sabka Vikas,” meaning development for all. It envisions a “Viksit Bharat” (Developed India) characterized by zero poverty, 100% quality education, accessible healthcare, widespread skilled employment, greater participation of women in the workforce, and a thriving agricultural sector that positions India as a global food basket.  

 

What are the six key domains targeted for transformative reforms?

The budget aims to initiate major reforms in:

• Taxation
• Power Sector  
• Urban Development
• Mining  
• Financial Sector  
• Regulatory Reforms  

 

Budget 2025 for Agriculture: How will Farmers Benefit?

Agriculture, the backbone of the Indian economy, receives significant attention. The Prime Minister Dhan-Dhaanya Krishi Yojana aims to revitalize 100 underperforming agricultural districts. This will involve improving irrigation, introducing modern farming techniques, and providing better access to credit, benefiting approximately 1.7 crore farmers. The government is also pushing for self-sufficiency in pulses through a dedicated 6-year mission. Initiatives like the National Mission on High-Yielding Seeds and the Mission for Cotton Productivity will promote innovation and improve crop yields. Crucially, the Kisan Credit Card (KCC) limit has been increased to ₹5 lakh, giving farmers greater financial flexibility.

 

What is the New Income Tax Slab for 2025-26?

Democracy, demography, and demand are crucial, and the role of the middle class in national building is appreciated. No income tax till income of Rs 12 lakh. 

Income tax slab changes budget 2025: The tax slabs and rates are as follows

0-4 lakh rupees: Nil

4-8 lakh rupees: 5%

8-12 lakh rupees: 10%

12-16 lakh rupees: 15%

16-20 lakh rupees: 20%

20-24 lakh rupees: 25%

Above 24 lakh rupees: 30%

 

What will Become Cheaper Post Budget 2025?

Union Budget 2025 Highlights: According to FM Nirmala Sitharaman’s Union Budget 2025 announcement, these are the following items that are meant to become cheaper after the government’s guidelines. 

1. Cancer and lifesaving drugs
2. Articles of jewelry such as goldsmiths ware 
3. Lithium-ion batteries for EVs and mobiles
4. Telecom equipment
5. Marine products 
6. Cobalt products 
7. Motorcycle imports

 

What will Become Costlier Post Budget 2025?

Certain items will likely become more expensive due to customs duty adjustments:

1. Smart meters  
2. Solar cells  
3. Imported footwear  
4. Imported candles and tapers  
5. Imported yachts and vessels  
6. PVC flex films, sheets, and banners
7. Certain imported knitted fabrics  
8. Interactive flat panel displays

 

Why the Union Budget Proposes the Creation of a ‘Makhana Board’ in Bihar?

In recent years, the once humble makhana has skyrocketed in popularity worldwide as a “superfood” of choice among fitness enthusiasts. This has prompted the government to focus on marketing makhana to commercially harness its popularity. A Makhana Board will be established in Bihar to improve the production, processing, value addition, and marketing of makhana. The Board will provide hand-holding and training support to makhana farmers, and will also work to ensure they receive the benefits of all relevant Government schemes.

 

Budget 2025 for MSMEs: What Support is Available?

MSMEs, the second growth engine, are crucial for job creation and innovation. The budget introduces revised classification criteria for MSMEs, raising both investment and turnover limits. This will allow more businesses to qualify as MSMEs and access various benefits. Access to credit is also being enhanced, with increased credit guarantee cover for MSEs and startups. Customized credit cards with a ₹5 lakh limit will be available for micro-enterprises registered on the Udyam portal.

 

Budget 2025 on Investment: Where is the Money Going?

The government is focusing on investment in human capital, infrastructure, and innovation.50,000 Atal Tinkering Labs will be established in schools to foster a scientific temper among students. Medical education capacity will also be expanded. States will receive interest-free loans for capital expenditure, and the Asset Monetization Plan aims to generate significant funds for reinvestment in infrastructure. The SWAMIH Fund 2 will address challenges in the real estate sector.  The Nuclear Energy Mission will drive clean energy development.

 

Budget 2025 on Exports: How will Global Competitiveness be Enhanced?

Exports are a key focus. An Export Promotion Mission will be launched with specific targets. BharatTradeNet (BTN) will streamline international trade documentation and financing. Support will be provided to integrate domestic manufacturing with global supply chains. A national framework will promote Global Capability Centres (GCCs) in tier-2 cities. Warehousing facilities for air cargo will also be upgraded.

 

Budget 2025 Tax Changes: What are the Key Updates?

• Direct Taxes: The budget introduces significant changes to personal income tax, with a focus on providing relief to the middle class. The nil tax slab has been increased to ₹12 lakh. The tax slabs have been revised to make the system more progressive. TDS/TCS simplification will reduce the compliance burden. The window for filing updated returns has been extended.
• Indirect Taxes: Customs duty rationalization will simplify the tariff structure and reduce the cost of essential goods, including life-saving drugs. Duties on EV components have been reduced. Trade facilitation measures will make it easier to do business.

 

Budget 2025 Fiscal Outlook: What are the Targets?

The government is targeting a fiscal deficit of 4.4% of GDP. Net market borrowings are estimated at ₹11.54 lakh crore. Total expenditure is projected at ₹50.65 lakh crore.

 

Budget 2025 on Social Welfare and Inclusion: What are the Initiatives?

The PM SVANidhi scheme has been revamped to provide enhanced financial assistance to street vendors. Social security measures are being introduced for gig workers. The Jal Jeevan Mission has been extended to 2028 to ensure access to clean drinking water.

 

Budget 2025 on Green Growth and Sustainability: What are the Plans?

The budget emphasizes green growth through initiatives in clean tech manufacturing, including solar PV and EV battery production. Investments will be made in the green hydrogen ecosystem. The Maritime Development Fund will support the blue economy.

 

What is the Nuclear Energy Mission?

Nuclear energy mission A key initiative in the Budget was the announcement of a Nuclear Energy Mission, intending to develop at least 100 gigawatts (GW) of nuclear energy by 2047. This aligns with India’s broader vision of becoming a developed nation under the “Viksit Bharat” initiative, marking a major step toward a clean energy transition. 

 

Budget 2025: What Does it Mean for You?

The Union Budget 2025-26 has something for everyone. From farmers and MSME owners to taxpayers and investors, the budget’s initiatives are designed to improve livelihoods, boost economic growth, and create a more sustainable future.  By understanding the budget’s key highlights and their potential impact, individuals and businesses can better prepare for the future and contribute to India’s growth story

In alignment with these national objectives, Gretex Corporate Services Private Limited continues to play a pivotal role in enabling SMEs & investors to capitalize on emerging opportunities, providing expert guidance and innovative financial solutions that support India’s growth journey.    

For more details refer to the Govt. of India website:  https://www.india.gov.in/spotlight/union-budget-2025-2026

 

Disclaimer

The information provided in this article regarding the Union Budget 2025-26 is for general informational purposes only and does not constitute financial, legal, or investment advice. It is recommended to consult with a qualified financial advisor before making any investment decisions.

In the world of Initial Public Offerings (IPOs), trends are shaped by economic shifts, market confidence, and sectoral growth patterns. 2024 has seen a remarkable resurgence in IPO activity, signaling a potential golden era for companies preparing for public listing. The year has been marked by an impressive 80% increase in IPO volume compared to 2023, with $18.5 billion raised in the first half alone. As we turn our gaze to 2025, market conditions indicate continued opportunities for companies with strong fundamentals, clear growth strategies, and the adaptability needed in today’s dynamic economic environment.

In this blog, we will understand the trends driving the IPO market, the sectors leading this resurgence, and the outlook for 2025. This will give aspiring companies insight into what’s next and how to best position themselves in an evolving IPO market.

 

Key Sectors Leading the Charge

 

Technology and AI

With the growing adoption of artificial intelligence, tech companies, especially those focused on AI-driven innovations, are expected to attract significant investor interest. Companies in cloud computing, cybersecurity, and healthcare technology should also benefit from this momentum.

 

Life Sciences and Healthcare

Healthcare innovation, particularly in biotech and life sciences, will remain a focal point. Companies focusing on healthcare technology and medical solutions will find robust support from investors keen on sustainable and impactful investments

 

Consumer Goods and Pharmaceuticals

These sectors have shown resilience, even in volatile markets, by addressing consumer needs. Continued demand for healthcare and wellness products is likely to keep these sectors attractive to investors.

 

Key Considerations for Companies Planning to List IPO

For companies eyeing a public offering in 2025, preparation is paramount. Here are some steps to strengthen IPO readiness:

 

1. Align Valuations with Market Expectations: Valuation expectations can significantly impact IPO success. Companies should assess market conditions carefully, considering the possibility of valuation resets in line with peer benchmarks. A more realistic valuation will attract investors, especially in a high-interest environment.
2. Strengthen ESG Commitments: Investors are increasingly scrutinizing companies’ ESG credentials. By defining quantifiable ESG goals, companies can enhance their appeal to a broad base of investors, especially as ESG investing continues to gain traction. Highlighting commitment to sustainability and governance can be a game-changer.
3. Optimize Financial Health: Companies with strong growth metrics, positive cash flow, and a clear path to profitability are well-positioned for a successful IPO. Financial transparency, operational efficiency, and strategic cost management will be critical for companies looking to inspire confidence in prospective investors.
4. Choose the Right Merchant Banker: Selecting the right merchant bankers to lead the IPO process is critical. Experienced bankers can guide the company through valuation assessments, regulatory compliance, and investor targeting, increasing the chances of a successful public debut.

 

The Path Forward for 2025: Optimism with a Strategic Approach

Many promising market indicators in 2024 have paved the way for an optimistic 2025 IPO outlook. The Dow Jones Industrial Average broke past the 40,000-point milestone, suggesting robust investor confidence. Inflation is declining, and the Federal Reserve recently introduced a favorable interest rate cut, giving markets a much-needed boost.

Despite an election year’s usual volatility, these factors have generated positive sentiment that is likely to carry forward. Companies with resilient fundamentals and a strong understanding of market timing may see opportunities to capitalize on a reinvigorated IPO landscape.

 

 

Opportunities Abound for the IPO Market in 2025 

In 2025, the IPO market is set to offer promising opportunities for companies across various sectors. For businesses contemplating an IPO, now is the time to refine growth strategies, highlight ESG goals, and ensure financial readiness. Partnering with the right merchant bankers can make a significant difference in managing this listing journey. 

By staying informed of current trends and preparing for the road ahead, aspiring IPO companies can maximize their potential for success and leave a lasting mark in the public arena.

 

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Gretex Corporate Services Limited’s Research Team, nor a report published by the Gretex Corporate Services Limited’s Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making investment decisions.