The Budget 2026, presented by Finance Minister Nirmala Sitharaman, sets the tone for India’s medium-term growth by balancing fiscal discipline with targeted sectoral expansion. While the market reaction on Budget Day reflected short-term volatility, the underlying announcements point to long-term structural opportunities. Budget 2026 focuses on infrastructure, MSMEs, manufacturing and innovation, prioritizing long-term growth despite short-term market volatility.

Stock Market Reaction to Budget 2026

The immediate market response to Budget 2026 was marked by sharp volatility. On 1 February 2026, benchmark indices opened higher in anticipation of growth-friendly announcements but reversed sharply as the session progressed.

Sensex & Nifty Volatility on Budget Day

• BSE Sensex touched an intra-day high of 82,726.65 (up 457 points) before witnessing heavy profit booking.
• NSE Nifty50 climbed to 25,440.90, gaining 120.25 points in early trade.

By 12:30 PM IST, sentiment turned cautious.

• Sensex fell 1,338.37 points 
• Nifty declined 494.90 points 

The selling pressure intensified by market close, with Sensex ending down over 1,800 points and Nifty closing below the 25,000 mark.

Impact of STT Hike on Market Sentiment

A major trigger for this reaction was the proposed increase in Securities Transaction Tax (STT):

• Futures STT increased to 0.05% from 0.02%
• Options premium STT raised to 0.15% from 0.10%
• Options exercise STT revised to 0.15% from 0.125% 

This reaction highlights a familiar pattern: Budget 2026 was welcomed for its structural intent but questioned for its short-term market implications.

Budget 2026 & MSMEs: Strengthening the Economy

Micro, small, and medium enterprises are central to Budget 2026. A ₹10,000 crore SME Growth Fund is proposed to support job-creating enterprises and a top-up of ₹2,000 crore to the Self-Reliant India Fund for supporting micro enterprises.

Liquidity support is strengthened through mandatory use of TReDS for CPSE purchases, integration with GeM, and credit guarantees for invoice discounting. The development of secondary markets for trade receivables could significantly improve cash flow for MSMEs. Training programs for compliance support, especially in Tier-2 and Tier-3 cities, further reinforce the MSME ecosystem under Budget 2026.

Budget 2026 Push for Biopharma and Life Sciences Growth

One of the most forward-looking aspects of Budget 2026 is its decisive push toward making India a global biopharma powerhouse.

A flagship initiative, Biopharma SHAKTI, carries a planned outlay of ₹10,000 crore over five years to build a full-spectrum biopharmaceutical ecosystem. This includes manufacturing scale-up, innovation capacity, and supply-chain resilience.

• Further strengthening the sector:
  Three new National Institutes of Pharmaceutical Education and Research will be established, while seven existing NIPERS will be upgraded to enhance advanced pharmaceutical education and innovation.
• Creation of a national network of 1,000+ accredited clinical trial sites, improving India’s attractiveness for global research collaborations.
• The Central Drug Standard Control Organization will be upgraded with dedicated scientific review teams and defined approval timelines aligned with global regulatory benchmarks.

These measures position Budget 2026 as a catalyst for long-term value creation in pharmaceuticals, biologics, and contract research.

Semiconductors in Budget 2026: Building Domestic Capabilities

Semiconductors remain a strategic priority in Budget 2026, reflecting India’s ambition to reduce import dependence and build domestic capabilities.

The Indian Semiconductor Mission (ISM) 2.0 has been allocated ₹1,000 crore for FY 2026–27. This phase focuses on:

• Indigenous manufacturing of semiconductor equipment and materials
• Expanding a large-scale chip design ecosystem
• Strengthening talent development and advanced training programs

Industry-driven research and training centers will play a central role in workforce readiness. For long-term investors, Budget 2026 reinforces the semiconductor theme as a multi-year structural opportunity.
Infrastructure, Real Estate, & Capex Outlook Under Budget 2026

Infrastructure, Real Estate, & Capex Outlook Under Budget 2026

Infrastructure remains the backbone of the Budget. Public capital expenditure is proposed to rise to ₹12.2 lakh crore, reinforcing the government’s commitment to asset creation and multiplier-driven growth.
Key structural reforms include:

• An infrastructure risk guarantee fund to de-risk private investment during construction phases.
• Recycling of underutilized public sector real estate through dedicated rights frameworks.
• New freight corridors connecting eastern and western India to enable greener cargo movement.

Additionally, container manufacturing will receive ₹10,000 crore over five years, while 20 new waterways are planned to expand inland transport capacity. These initiatives collectively aim to increase the share from 6% to 12% of inland waterways and coastal shipping by 2047.

High-speed rail corridors, urban development for temple towns and smaller cities, and integrated industrial corridors further strengthen infrastructure depth under the Union Budget 2026.

Textiles Sector Reforms in Budget 2026

The textile sector receives comprehensive attention in Union Budget 2026, spanning raw materials, manufacturing, skilling, and branding. The focus on natural and man-made fibres enhances self-reliance, while modernization of traditional clusters supports productivity and quality upgrades.

By integrating existing schemes and supporting artisans and weavers, Budget 2026 blends economic growth with employment generation. The emphasis on sustainable and globally competitive textiles strengthens India’s export positioning, especially in technical textiles and value-added apparels. 

Rare Earths and Chemicals Strategy in Budget 2026

Rare earth minerals and specialty chemicals play a critical role in clean energy, electronics, and defense. Budget 2026 proposes dedicated rare earth corridors across mineral-rich states such as Kerala, Odisha, Tamil Nadu, and Andhra Pradesh.
These corridors will support:

• Mining and processing
• Manufacturing and applied research

Complementing this, three chemical parks will be developed using a cluster-based plug-and-play model. This approach under Budget 2026 aims to boost domestic chemical production while lowering reliance on imports.

Investment Strategy & Market Outlook Post Budget 2026

From an investment lens, Budget 2026 is not about short-term market comfort but long-term structural positioning. Infrastructure, manufacturing ecosystems, healthcare, MSMEs, and technology-linked sectors appear as sustained beneficiaries.

While initial market volatility reflects uncertainty, the policy direction under Budget 2026 remains growth-oriented and ecosystem-driven. Investors and entrepreneurs who align with these structural themes may benefit as implementation unfolds.

Final Thoughts: Interpreting Budget 2026 for the Long Term Growth

Budget 2026 is not designed for short-term market comfort. Instead, it lays out a multi-year blueprint focused on infrastructure depth, manufacturing resilience, innovation capacity, and inclusive growth.

While market volatility on announcement day reflected tactical concerns, the underlying policy direction favors sectors aligned with capital formation, domestic capability building, and global integration. For investors and entrepreneurs, Budget 2026 reinforces the importance of patience, sector selection, and long-term conviction in India’s structural growth story.

In essence, the Union Budget 2026 reshapes economic priorities, rewarding those who look beyond immediate headlines and focus on sustained value creation.

India’s capital market ecosystem has witnessed remarkable transformation over the past few years. As we enter a new year, industry experts and market analysts are closely monitoring what appears to be a significant shift in how companies approach public fundraising. IPO market source as a bridge between – proprietary business enterprises and listed public entities involving larger shareholding and participation by public at large level.  The IPO market, which serves as a bridge between private enterprises and public capital, may be entering a phase of unprecedented activity.

Based on recent industry assessments, the fundraising potential for 2026 has been estimated at approximately $20 billion. This projection reflects not just optimistic sentiment, but also the maturation of India’s primary market infrastructure and the evolving readiness of small as well as large enterprises to access public capital. 

IPO Market Trend & Growth Pattern

To appreciate where the IPO market may be heading, it’s essential to understand the journey of the past five years. Between 2020 and 2025, Indian companies collectively raised approximately ₹5.39 lakh crore through initial public offerings. What makes this figure particularly noteworthy is that it surpasses the entire ₹4.5 lakh crore raised during the 20-year period from 2000 to 2020.

This acceleration didn’t happen because of a surge in the number of listings. In fact, the past five years saw roughly half the number of IPOs compared to the previous two decades, 336 offerings versus 658. The real transformation lies in the scale of individual offerings. The average IPO size has more than doubled, moving from ₹692 crore in the earlier period to ₹1,605 crore in recent years.

This shift indicates that larger, more established companies are increasingly viewing public markets as viable fundraising and liquidity options, rather than treating IPOs as early-stage growth tools. Let’s analyze the growth pattern of Mainboard IPOs in 2024 and 2025: 

What Could the IPO Market Trend 2026 Mean for Investors

The anticipated public offering activity in 2026 represents more than just numbers on a spreadsheet. It signals several underlying developments in India’s economic and financial landscape.

Sectoral Diversity

The pipeline appears to include companies from telecommunications, financial services, consumer technology, digital payments, and hospitality sectors. This diversity suggests that the appetite for public listings is no longer confined to specific industries, but rather reflects broad-based confidence in India’s growth trajectory.

Institutional Maturity

Large-scale offerings require sophisticated institutional support—from investment bankers and legal advisors to institutional investors and the market infrastructure. The readiness of multiple large enterprises to approach public markets simultaneously may indicate that India’s financial ecosystem has reached a level of maturity capable of absorbing significant primary market activity.

Investor Appetite

For the IPO market trend 2026 projections to materialize, investor demand must align with issuer supply. The fact that such large offerings are being contemplated suggests that companies and their advisors have observed sustained investor interest in quality public offerings.

The Democratization of Capital Access in IPO Market

One particularly encouraging development in the IPO market has been the geographic diversification of issuers. Companies from smaller cities and towns, which contributed merely 4% of IPO funds in 2021, increased to 27% by 2024.

This trend reflects a fundamental shift in how capital markets function in India. Equity funding is no longer the exclusive domain of metropolitan enterprises. Companies operating from Tier-2 and Tier-3 cities are finding that public markets can be accessible routes for growth capital, provided they meet regulatory requirements and can articulate compelling business narratives.

This geographic spread adds resilience to the IPO market and ensures that capital formation becomes more inclusive, touching businesses across India’s diverse economic landscape.

Deep Dive: 2026 IPO Pipeline

One cannot discuss the IPO Market Trend 2026 without acknowledging the staggering latest IPO statistics. According to regulatory data and industry reports, the pipeline is remarkably robust. Approximately 84 companies have already secured the green light from SEBI to enter the primary market, with a collective aim to raise about Rs 1.14 lakh crore.

However, the depth of the market goes further; an additional 108 companies are currently in the process of seeking approvals, planning to mobilize nearly Rs 1.46 lakh crore. When you aggregate these figures, the potential fund mobilization from more than 190 issuers could exceed Rs 2.5 lakh crore. Big names and massive conglomerates are leading this charge, with much-anticipated offerings from entities including SBI Mutual Fund, Reliance Jio, NSE, Zepto, Flipkart, OYO and many more drawing significant market attention for the upcoming year.

Private Equity and the Exit Landscape

Another dimension shaping the IPO market trend 2026 outlook is the evolving exit strategy of private equity investors. With approximately $165 billion in private equity investments approaching maturity, these financial sponsors are evaluating efficient pathways to maximize returns.

The offer-for-sale (OFS) mechanism has gained acceptance as a credible exit route. Between January and October 2025, secondary sales through OFS doubled to represent 16% of total exits, while traditional block deals decreased from 67% to 56%. This rebalancing suggests that promoters and investors are increasingly comfortable using public market listings as liquidity events.

When private equity firms prepare to monetize holdings at scale, IPOs become attractive because they offer price discovery, market validation, and orderly distribution to a broad investor base.

Navigating Market Conditions and Regulatory Environment

While the structural factors supporting robust IPO market activity appear favorable, it’s important to recognize that actual outcomes depend on multiple variables. Market sentiment, global economic conditions, regulatory developments, and sector-specific challenges all influence whether planned offerings materialize as anticipated.

Companies considering public listings must navigate SEBI regulations, ensure strong corporate governance, demonstrate sustainable business models, and price offerings appropriately. The success of the IPO market in 2026 will ultimately depend on how well issuers and their advisors balance ambition with market realities.

Final Thoughts: The Future of India’s IPO Market

The IPO market trend 2026 narrative reflects optimism grounded in observable patterns, larger average deal sizes, geographic diversity, institutional maturity, and significant private equity capital seeking exits. What appears certain is that India’s primary market has evolved considerably. The infrastructure, investor base, and corporate readiness have all strengthened. For market participants, whether issuers, investors, or intermediaries, the upcoming year presents an opportunity to participate in what could be a defining period for India’s capital markets.

If you are planning to get your company listed on the stock exchange, you are entering into one of the most transformative funding journeys a business can embark on through IPO. The public-listing route is not only about raising capital but about preparing your organisation for enhanced transparency in financial reporting, better governance and vast market presence. The IPO process enables your company to shift from a private entity with limited compliances & governance to a listed public company,  with enhanced and structured regulatory framework,  to improvise disclosures and reporting, to pitch to the prospective investors for funding, to get the  regulatory clearance after thorough due diligence and ultimately to go live on the stock exchange. Understanding this process empowers you to lead it with confidence, align your vision and engage key advisors effectively.

The IPO Process in India involves four key stages- preparation, due diligence, marketing, and post-listing compliance. Learn how promoters can plan successful listings.

Detailed Roadmap of IPO Process in India

Phase 1 – Preparation & Readiness

1. Self-assessment & Strategic Planning

Before you formally enter the IPO process, evaluate whether your business is ready. Key questions include: Is your business model stable? Is profitability (or credible path to profitability) visible? Do you have robust financials, governance and audit controls? The IPO process demands high transparency, so now is the time to strengthen your internal systems.

Conduct an internal readiness checklist covering three years of audited accounts, board composition, internal controls, litigations and IP (intellectual property) clearance.

2. Selecting Advisors: Merchant Bankers/Lead Manager (BRLM)

Engagement of a merchant banker (also called lead manager) helps you kick-off the IPO process. The merchant banker will guide structuring, pricing, filings, reporting and marketing. It is advisable to choose a firm with prior IPO experience in your sector or industry. At the same time, secure legal and auditing professionals who understand public-market disclosures and compliance as per the regulatory framework in place.

3. Corporate Governance, Restructuring and Compliance

The IPO process also requires governance upgrades: clear shareholding, clean litigation records, dematerialised share capital, a qualified and experienced company secretary, and proper board structure and committees. In case of matters requiring professional guidance (e.g., unresolved audit qualifications, complex shareholder arrangements), fix them ahead of the filing.

Phase 2 – Due Diligence, Structuring & Filing

4. Due Diligence and Preparing Disclosures

Once advisors and professionals are on board, the merchant banker conducts substantive due diligence: financial statements, legal compliance, risk factors, business governance and management credentials. This phase is integral to the IPO process because it feeds into the public disclosure that investors will rely upon. 

5. Structuring the Offering: Size, Instrument Type, Allocation Strategy

During the IPO process you must make strategic decisions: how much capital to raise, whether to offer fresh shares, whether to use book-building or fixed-price methods, anchor investor structure, promoter lock-in terms, etc. These decisions impact the attractiveness and outcome of your listing. 

6. DRHP/RHP Filing with SEBI and Stock Exchanges

The core of the IPO process is the filing of the Draft Red Herring Prospectus (DRHP) or Red Herring Prospectus (RHP). This document contains your business model, growth strategy, risk factors, use of funds, management background, litigation disclosures, and financials. You file with SEBI, the stock exchanges and Registrar of Companies in line with regulations.

7. SEBI & Exchanges’ Observations and Approval (cooling-off period)

After filing your DRHP, a regulatory review begins. SEBI and respective stock exchange issues observations or comments, you respond and revise only after clearance, you can proceed to a public issue. This is a crucial part of the IPO process and sets your timeline. 

Phase 3 – Marketing, Pricing, Allotment & Listing

8. Roadshow and Investor Marketing

With regulatory clearance in hand, you and your merchant banker embark upon investor-roadshows, presentations to large institutional and anchor investors, and perhaps global marketing. The IPO process blueprint includes building demand, explaining your business narrative and ensuring your audience understands the growth potential. 

9. Pricing and Allocation: Fixed-price vs Book-building

In the IPO process you must choose how to price the shares. In a fixed-price issue, the price is set upfront. In the book-building route, you set a price band, allow bids and then price accordingly. Each has pros and cons. Most Indian issues adopt book-building for wider investor participation.

10. Opening the Issue, Collecting Applications, Allotment and Listing

After pricing, you open the issue to individual/non-institutional/institutional investors. Applications are collected typically through ASBA (Applications Supported by Blocked Amount) mechanism. After subscription closes, allotment is done, shares are credited to demat accounts, and listing takes place on the chosen exchange (for most companies: National Stock Exchange and/or Bombay Stock Exchange) on the stipulated date. This completes the IPO process in India.

Phase 4 – Post-IPO Obligations & Governance

11. Investor Relations, Disclosure, and Ongoing Compliance

Once listed, your company must maintain investor relations, publish quarterly/annual results, adhere to continuous disclosure norms, manage promoter lock-in expiries and maintain share price performance. These are integral parts of the IPO process in the sense of “after-listing” obligations.

12. Leveraging Listing for Further Growth

The IPO process doesn’t end at listing. Successful companies use the listing to enhance brand credibility, access future follow-on offerings, expand their business and deliver sustained performance.

Typical Timelines, Costs and Consideration

• Timelines: The full IPO process in India typically spans 6 to 9 months, depending on company size, sector, regulatory turnaround and market conditions.
• Costs: Advisory fees (merchant banker, legal, auditing), regulatory fees (SEBI filing, stock exchange listing), marketing/roadshow expenses, printing/disclosure costs, underwriting fees. 
• When is the “right window” to file (market conditions)?
• What is the optimal issue size (raising too much dilutes value; too little may hamper credibility)?
• Which pricing method to use (fixed vs book building)?
• Acting early on these decision points improves your control over the IPO process.

Hypothetical Case Example : IPO Journey of XYZ Tech Limited

XYZ Tech Ltd., a Mumbai-based software services company, decided to raise ₹100 crore via public listing. Here is how their IPO process in India unfolded:

1. Preparation: 18 months before launch they cleaned up shareholder structure, resolved two pending legal cases and appointed a compliance officer.
2. Advisor Selection: They engaged a merchant banker with prior tech-sector IPOs, legal counsel and auditors familiar with public-market disclosures.
3. Due Diligence and DRHP Filing: The team compiled business overview, risk factors, audited accounts, use of proceeds, filed DRHP with SEBI and received observations two months later.
4. Roadshow & Pricing: After SEBI clearance, Sunrise Tech organised roadshows in Delhi, Mumbai and Bengaluru, targeting anchor investors. They used the book-building method with a price band of ₹90-₹105. Demand was strong and the final price was fixed at ₹100.
5. Allotment & Listing: Issue opened for five days, successfully subscribed three times. Shares listed on NSE with a 10% above-issue-price debut.
6. Post Listing: XYZ Tech established a formal investor-relations page, published quarterly results, and maintained promoter lock-in for 3 years. Through this structured IPO process, XYZ Tech not only raised capital but improved corporate governance and brand visibility.

Final Thoughts

The IPO process in India offers your company a powerful opportunity to access capital, enhance brand visibility and accelerate growth, but only if approached systematically and strategically. By understanding each phase, preparing rigorously, choosing the right partners, and avoiding common pitfalls, you enhance your chances of a successful public offering.

Frequently Asked Questions About the IPO Process

Q1: What is the typical duration of the IPO process in India?
Answer : On average the IPO process takes 6 to 9 months from decision-to-launch through listing, though a few companies may take longer depending on readiness and regulatory turnaround.

Q2: Can I choose between fixed-price and book-building methods in the IPO process
Answer:  Yes, the choice between the fixed-price method and the book-building method in an IPO is made by the company that is issuing the shares, not by investors. In simple terms, if a company wants to go public, it can decide whether to set one final share price in advance (fixed-price method) or give a price range and let investors bid so the final price is decided based on demand (book-building method).

Fixed-Price IPO

The fixed-price method is an IPO process where the company decides one set price for its shares before the IPO opens. This price is announced in advance, so investors know exactly how much they will pay when they apply for the IPO. Investors do not bid or negotiate the price; they simply choose how many shares they want to buy at that fixed price. After the IPO closes, the company checks the total demand and then allots shares accordingly. In simple words, it is like buying an item from a shop with a fixed price tag, making this method easy to understand but less flexible in reflecting market demand.

Book-Building IPO

The book-building method is a way of deciding the price of shares in an IPO based on investor demand. Instead of fixing one price, the company gives a price range (for example, ₹90 to ₹100). Investors then apply for shares by bidding at a price within this range and stating how many shares they want. After the IPO closes, all these bids are collected and analyzed, and the company decides the final share price at which most shares can be sold. In simple words, it works like an auction, where the price is discovered based on how much investors are willing to pay, making it a more market-driven and commonly used method today.

Q3: What key roles does the merchant banker play in the IPO process?

Answer: The merchant banker (lead manager) guides through structuring, due diligence, DRHP/RHP filing, pricing, marketing, market making and underwriting. They are central to managing the IPO process end-to-end.

Q4: Are there minimum regulatory compliances before launching the IPO process?

Answer: Yes. You must comply with governance norms, have audited & restated financials, resolve material litigation/IP risks, appoint a company secretary, ensure dematerialisation of shares, obtain in-principle listing approvals, among others. 

Q5: What happens after the shares are listed on the exchange? Is the IPO process over?

Answer: Not completely. Post-listing obligations, investor relations, quarterly disclosures, promoter lock-in, responding to market feedback are part of the extended IPO process. Good ongoing governance enables price and value discovery and sustains the value the listing has created.

Q6: Can a company delay or withdraw an IPO process in India if market conditions change?

Answer: Many companies stay ready but postpone the public issue if valuations or sentiment are weak. A disciplined approach means readiness without forcing an ill‐timed listing.

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)