IPOs for Indian SMEs: Fueling Capital Access, Credibility & Scale

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IPOs for Indian SMEs: Fueling Capital Access, Credibility & Scale

IPOs for Indian SMEs: Fueling Capital Access, Credibility & Scale

Articles
Aug 30,25

SME Initial Public Offerings (IPOs) are transforming India’s entrepreneurial landscape by providing capital access, credibility, and governance, enabling small and medium enterprises (SMEs) to scale sustainably. Rakesh Rao sheds light on the real opportunities presented by capital market to aspiring SMEs.

IPOs for Indian SMEs: Fueling Capital Access, Credibility & Scale

Small and medium enterprises (SMEs) are often described as the backbone of India’s economy. They generate employment, reduce regional imbalances, and contribute significantly to GDP and exports. Yet, their ability to scale and compete globally has long been constrained by limited access to capital and the high cost of debt.

In recent years, SME Initial Public Offerings (IPOs)—dedicated platforms for small businesses to raise equity funding through stock exchanges—have emerged as a transformative avenue. More than just a fundraising mechanism, SME IPOs bring credibility, transparency, and an institutional framework that helps enterprises scale sustainably.

Evolution of SME IPO platforms

Emphasising on the macroeconomic significance of SMEs, Kalpesh Patel, Director, CareEdge Ratings, says, “SMEs are an important pillar of any economy, and particularly for India. Dedicated SME IPO platforms have really made the equity fundraising process easier for these enterprises and given them new growth prospects.”

Providing historical context, Riddhesh Shah, Deputy Vice President – SME & Start-up Segments, BSE Ltd, traces the journey of SME listings: “The BSE SME platform started in 2012 and, in just over a decade, 607 companies have raised nearly Rs 108.50 billion. What is more important is that their combined market capitalisation today exceeds Rs 1850 billion. That reflects how fundraising helps SMEs realise their true market value.”

The pace of growth has accelerated dramatically. While it took over three years to list the first 100 companies, the most recent 100 were listed within just 15 months. Moreover, the average IPO size has quadrupled in five years—from Rs 110 million to over Rs 400 million—showing rising investor appetite and increasing maturity of issuers.

Why SMEs choose IPOs over other routes

When asked why SMEs increasingly prefer IPOs over private equity or venture capital, Anand Chari, Capital Market/IPO Coach & Mentor for SMEs, highlights the issue of promoter autonomy. He says, “Unlike PE or VC deals, SME IPOs give entrepreneurs freedom. Promoters retain control and are answerable only to shareholders who have invested their hard-earned money. There is no one sitting on their head dictating terms.”

The visibility and credibility that come with a public listing are equally vital. With over 600 SMEs already listed on BSE and NSE, companies gain instant recognition among customers, suppliers, bankers, and government agencies. This visibility often opens doors to larger contracts and new markets.

Mindset shifts among entrepreneurs

For many entrepreneurs, going public requires a fundamental change in mindset. Dr Sunil Gupta, Founder, Pioneer Outsource Services Pvt Ltd, who advises SMEs on IPO readiness, explains, “Earlier, business owners focused only on reducing costs and booking immediate profits. Today, they think about valuations, scalability, and shareholder value. This shift from a cash-withdrawal mindset to a reinvestment and growth mindset is one of the biggest changes I have witnessed.”

He also noted that SMEs are now more open to practices like issuing Employee Stock Ownership Plans (ESOPs), professionalising management, and investing in branding—moves that align them with institutional investors’ expectations.

One of the most compelling stories is of Dhruv Consultancy Services, which successfully transitioned from an SME listing to the main board. Tanvi Auti, Managing Director, Dhruv Consultancy Services Ltd, recalls the apprehensions before listing: “Most entrepreneurs fear compliance, thinking it will put them under a radar. But we found compliance brought discipline, transparency, and structured decision-making. Far from being a burden, it became a catalyst for growth.”

She describes three major operational shifts:

1. Corporate Governance: Independent directors, structured boards, and transparent systems accelerated strategic decision-making.

2. Financial Discipline: Adoption of India’s accounting standards, forecasting, and budgeting improved capital allocation and accountability.

3. Technology and Processes: Digitisation, ERP systems, and departmentalisation streamlined workflows, improved efficiency, and enabled scalability.

On the cultural side, she emphasises how employees developed a sense of pride working for a listed company. Tools like ESOPs enhanced talent retention, while the company attracted senior professionals from leading infrastructure firms. “SME listing pushes you from being a successful business to a scalable business,” she remarks.

Investor appetite and market conditions

Broad market conditions and sectoral trends play a crucial role in SME IPO success. Riddhesh Shah points out India’s macro tailwinds: “India is now the fourth-largest economy and soon to be the third. SMEs already contribute about 30 per cent to GDP, and their share is expanding. Investors know that catching them young means growing big with them.”

He adds that demand for SME equity is not confined to a single sector: companies from textiles, IT, defence, retail, energy, and infrastructure have all raised funds. The ongoing wave of industrialisation, new economic zones, and sectoral diversification continues to fuel demand for capital.

Anand Chari provides real-world examples to demonstrate investor gains:

Knowledge Marine Engineering Works, listed at Rs 37 in 2021, now trades near Rs 1,900, with valuations rising from Rs 410 million to over Rs 20 billion.
AFCA Moulding, listed at Rs 104, has grown to nearly Rs 1,000 within a year, multiplying investor wealth nearly tenfold.

Such stories underscore why both retail and institutional investors are showing heightened interest in SME IPOs.

IPO readiness: Indicators and challenges

From an advisory standpoint, Dr Sunil Gupta identifies key indicators of IPO readiness:

Scalable business model: Tech-enabled, manufacturing, or service businesses with growth potential.
Consistent profits: Ideally Rs 60–70 million PAT or higher to attract serious investors and merchant bankers.
Compliance Preparedness: From GST and tax filings to the 300-page Draft Red Herring Prospectus (DRHP), SMEs must demonstrate full transparency.
Governance and Management: A capable leadership team and willingness to adopt corporate governance standards.

He likened IPO advisors to doctors: “Just as you go to a specialist for treatment, SMEs must seek experienced advisors who can guide them through due diligence and documentation. Outsourcing compliance makes the journey smoother.”

For Dhruv Consultancy, the listing was transformative. From a turnover of Rs 150 million at the time of IPO, the company has grown past Rs 1 billion, expanded from Maharashtra to 27 states, and opened offices in London, the Middle East, and Africa.

Tanvi Auti attributes this leap to the credibility and financial flexibility gained from listing.

“When we got listed, we gained instant credibility with government agencies, banks, and international partners. It also helped us attract top professionals and expand into airports, railways, and urban infrastructure,” she states.

Policy and regulatory support

The SME IPO ecosystem has benefited from progressive regulatory reforms. Riddhesh Shah explains, “In March 2025, SEBI overhauled the regulations—making eligibility, structuring, and investor limits clearer. Exchanges are also leveraging AI tools to help merchant bankers validate documents and reduce errors. This has simplified and accelerated the listing process.”

The availability of over 50 merchant bankers and proactive hand-holding by exchanges has created a smoother pipeline for SME listings.

Right IPO strategies

Industry experts suggest following strategies for SMEs to maximise IPO success:

Institutionalise governance early: Move from promoter-driven to process-driven organisations.
Be transparent and consistent: Timely disclosures, fair valuations, and honest accounting are critical to building trust.
Invest in scalability: Adopt technology, professional leadership, and systems that support growth.
Choose the right advisors: Experienced merchant bankers, advisors, and mentors can make or break the IPO journey.
Engage investors post-listing: Investor relations, roadshows, and transparent communication help sustain liquidity and trust.

As Tanvi Auti advises, “Focus on execution and your business. Market valuations will follow. Deliver commitments, align employees, and avoid over-leverage.”

Future outlook

Looking ahead, the SME IPO landscape will continue to flourish. With over 60 million MSMEs in India, even a small fraction tapping capital markets could unleash unprecedented economic potential. Anand Chari predicts, “We may see 2–3 lakh SMEs eligible for listing in the next few years. With honest promoters, scalable businesses, and investor appetite, this could be the biggest wealth creation opportunity of the decade.”

According to Kalpesh Patel, “SME IPOs are not just a funding mechanism but a catalyst for credibility, governance, and scalable growth. With the right mindset and ecosystem, SMEs can truly unlock immense value.”

The Indian SME IPO story is still unfolding, but the trajectory is clear. Over a decade, SME exchanges have evolved into vibrant platforms enabling entrepreneurs to access capital, gain visibility, and scale without losing control. Real-world success stories demonstrate that going public can transform not just balance sheets but entire organisational cultures.

For India’s small businesses, the IPO is not an end but the beginning of a new growth journey—one that aligns them with global standards, attracts institutional investors, and allows them to dream beyond traditional limitations.

As regulatory clarity improves, investor appetite deepens, and more entrepreneurs embrace governance and transparency, SME IPOs are poised to play a defining role in India’s journey towards becoming a $10 trillion economy.

(This article is based on the virtual panel discussion on “SME IPOs: Fueling Capital Access, Credibility and Scale” - organised by Smart Manufacturing & Enterprises on Aug 22, 2025.)

6 Photo Quotes

Kalpesh Patel, Director, CareEdge Ratings

SME IPOs are not just a funding mechanism but a catalyst for credibility, governance, and scalable growth. With the right mindset and ecosystem, SMEs can truly unlock immense value.

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Riddhesh Shah, Dy VP – SME & Start-ups, BSE Ltd

India is now the fourth-largest economy and soon to be the third. SMEs already contribute about 30% to GDP, and their share is expanding. Investors know that catching them young means growing big with them.

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Tanvi Auti, MD, Dhruv Consultancy Services Ltd

Most entrepreneurs fear compliance, thinking it will put them under a radar. But we found compliance brought discipline, transparency, and structured decision-making. Far from being a burden, it became a catalyst for growth.

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Anand Chari, Capital Market/IPO Coach & Mentor for SMEs

Unlike PE or VC deals, SME IPOs give entrepreneurs freedom. Promoters retain control and are answerable only to shareholders who have invested their hard-earned money.

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Dr Sunil Gupta, Founder, Pioneer Outsource Services Pvt Ltd

Today, business owners think about valuations, scalability, and shareholder value. This shift from a cash-withdrawal mindset to a reinvestment and growth mindset is one of the biggest changes I have witnessed.