The BSE SME IPO index has entered bear territory - a term used to describe when an gauge declines by at least 20% from its recent peak- after outperforming most global and domestic indices as well as other asset classes for a long time.
The SME IPO index had touched a record high 122,298 on January 6, 2025, and has seen a rapid decline since then, sliding to 95,553.
The plunge comes on the back of four consecutive years of large gains, when the index surged 147 percent in 2024, following a 96 percent jump in 2023. The BSE SME IPO gauge was up 43 percent in 2022 after a whopping 1,103 percent rise in 2021.
Market experts suggest this correction aligns with broader market correction in India, triggered by sustained foreign investor outflow amid concerns of slowing economic growth, weak corporate earnings, and a global tariff uncertainty that is unfolding.
Read More: SME IPOs highly risky, take educated decisions, says NSE's Ashish Chauhan
Prashanth Tapse, Senior VP of Research at Mehta Equities said the extended decline is primarily due to recent regulatory tightening after prices reached unsustainable levels. Tapse pointed out that the index had gained around 117 percent return within a year, before it saw a 20 percent decline on regulatory steps sending the index into bear territory. He expects continued downward pressure, and advises investor to be cautious in this space.
Following sustained popularity and oversubscription of SME IPOs, capital market regulator Securities and Exchange Board of India (SEBI) had recently issued an advisory cautioning investors over potential risks involved with investing in this space. The regulator said investors must exercise prudence and avoid being swayed by overly optimistic projections, recommendations on social media, or unsubstantiated rumours.
So far in 2025, more than 20 firms have listed in the SME segment, with 10 trading below their issue price and five almost unchanged. In 2024, of the 247 SMEs that got listed, 79 are now trading below their issue price, and another 24 delivering returns in single digit or close to their issue prices.
In 2024, of the 12 SME IPOs that doubled on listing day, all have erased gains. Nearly 60 SME listings that clocked 10-90 percent gains on listing day are either trading flat, or at a discount to issue price.
Read More: Experts suggest strict rules to clean up SME IPO arena
Prathamesh Masdekar, Research Analyst at Stoxbox said fundamentals and reasonable valuations are critical for SME IPO investment in the current environment, despite the 20 percent decline from highs. He recommends investors prioritise management quality, consistently profitable track record, substantial total addressable market, and a defensible business moat before deciding on any investment.
Read More: Average retail applicants in SME IPOs jumps from 30,000 to 2.3 lakh in four years
Masdekar said the previously buoyant market helped many successful IPOs, a trend that may be challenging to replicate in present market conditions. While SME IPO investment after a market correction can be rewarding, it comes with high risks that investors must carefully evaluate.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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