NSE further tightens norms for SME listings amid ongoing frenzy

In the latest move, NSE has said that only those companies that have positive Free cash flow to Equity (FCFE) for at least two out of three financial years preceding the application will be allowed to list on the SME segment.

Starting September, the National Stock Exchange will further tighten norms for small and medium enterprises (SMEs) looking to list on the stock exchanges, amid an ongoing frenzy in IPOs.

In the latest move, NSE has said that only those companies that have positive Free Cash Flow to Equity (FCFE) for at least two out of three financial years preceding the application will be allowed to list on the SME segment.

FCFE represents is the amount of cash that a business generates which is available for distribution among shareholders.

“The above additional criteria will be applicable for all DRHPs filed on or after 1st September 2024. All other criteria remain unchanged. This shall be applicable till further orders,” stated a circular issued by the exchange.

This assumes significance as the exchange had recently introduced a cap of 90 percent on the price movement on listing day of the SME IPOs.

"To standardise the opening price discovery/ equilibrium price across exchanges during special pre-open session for initial public offer (IPO) for the SME platform, it has been decided to put an overall capping up to 90% over the issue price for SME IPOs,” NSE had said in a circular issued on July 4.

Also Read: SME IPO: NSE puts 90% cap over issue price for pre-open session

The SME IPO segment has been in the news for unusually high levels of subscription, and ensuing listing gains that are often huge. There have been a couple of SME IPOs this year that saw the offerings getting subscribed more than 1,000 times each, and many were subscribed in multiple of hundred times.

Such oversubscription has often been followed by a huge listing day rise in share price, with many SMEs stocks more than doubling on the first day itself. This had raised concerns of manipulation and froth in the segment, with Sebi chairperson Madhabi Puri Buch too expressing concerns.

Also Read: 'We see signs of manipulation in the SME segment,' says SEBI chairperson

“We do see signs of manipulation in the SME (small and medium enterprises) segment… We are able to see certain patterns. However, as per our regulation, the way that we need to construct the entire case, we do need to take some time to do that in a robust manner,” Buch had said in March.

This year has already set a new record cumulative fund raise by SMEs. Prime Database insight shows that as many as 144 SMEs launched their public issues in 2024 with a total fund raising of Rs 4,800 crore. The previous calendar year – 2023 – also saw high SME IPO activity, with 182 companies coming to the market to raise a cumulative Rs 4,686.11 crore.