Navigating the Pitfalls of SME IPOs in India: Regulatory Challenges, Investor Losses, and Policy Solutions
Jagyansh Kumar
(National Law Institute University, Bhopal.)
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Abstract
India’s Small and Medium - sized Enterprises (SMEs) have proven pivotal in the country’s
industrial development, contributing significantly to its GDP and employment levels. To
promote them and help them raise more capital, the Securities and Exchange Board of India had introduced an Initial Public Offering (IPO) mechanism to such industries.
Although the aim was to promote industrial growth and investment, the ecosystem ultimately became marred by investor losses, financial misconduct, and regulatory inefficiencies. This paper critically examines the challenges facing SME IPOs, including discounted listings, instances of financial misrepresentation, and inadequate due diligence by intermediaries. By analysing egulatory gaps and drawing comparisons with frameworks present in the UK, Japan, and Australia, the study highlights weaknesses in the Securities and Exchange Board of India’s oversight mechanism.
The author strives to provide an actionable policy framework to enhance investor confidence and market integrity. Key suggestions include stricter due diligence mandates for intermediaries, a lock in period for promoters, a tiered penalty framework for violations, and the establishment of a specialized SME regulatory framework.
Insights from international best practices, such as the Alternative Investment Market (AIM) in the UK and Japan’s ‘Growth Market’, have been proposed post tailoring to the Indian context. By addressing these challenges, the paper advocates for a robust, transparent, and investor-friendly SME IPO ecosystem to support the sustainable growth of SMEs in India.​