Raising ₹8,288 Cr in FY24: Is SME IPO Market a Boom or in Bubble?

Small and medium-sized enterprises (SMEs) have become a focal point for investors seeking quick returns, increasingly tapping into public markets. According to Trivesh D, COO of Tradejini, retail investors find SME IPOs an attractive yet high-risk option for diversifying their portfolios.

Between April 1 and October 31, 2024, there was a significant rise in SME IPOs in India, with 169 out of 217 IPOs (about 78%) originating from SMEs. Despite the high volume of listings, these IPOs only accounted for 6% of the total funds raised, indicating the limited capital these companies attract per IPO, making them vulnerable to market manipulation.

In the year-to-date (YTD) for 2024, SME IPOs have raised ₹8,288 crore, marking the highest amount so far. In comparison, they raised ₹4,967 crore in 2023 and ₹1,995 crore in 2022.

Trivesh D highlighted the increasing popularity of SME IPOs among companies aiming to go public. Data shows these IPOs have yielded notable returns, with median listing-day gains at 34.43% and a YTD median return of 33.09%.

In contrast, mainboard IPOs reported an average listing-day gain of 23% and a YTD gain of 25%. This performance has attracted high-net-worth investors (HNIs), who are optimistic about short-term returns but may be underestimating the sustainability of these gains, as noted by Trivesh D.

The Evolution of SME IPOs

SMEs have evolved in their approach to listing, with initial focus on short-term gains gradually shifting towards a more corporate mindset. This change is particularly evident as younger generations and former employees take on larger management roles, bringing a strategic outlook to operations. Despite these improvements, Trivesh D warns that SME stocks still carry substantial risks for investors.

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