SME IPO boom fizzles: Sharp correction wipes out multi-bagger returns

While some recently listed SME stocks still hold strong gains, a majority have seen steep declines.

The BSE SME IPO index saw a stellar run in 2024, surging over 147 percent to emerge as the best performing domestic gauge. However, with the sharp market correction, the returns have moderated significantly, with the index crumbling 30 percent from its all-time highs.

Over the past few years, the SME IPO space grabbed the attention of retail investors, who pool in large sums of money, hoping for outsized returns. And sometimes, their bets paid off.

Issues such as Resourceful Automobile, a company operating just two Yamaha showrooms in New Delhi with a staff of only eight, saw its IPO subscribed an astonishing 400 times on the final day of bidding. Clearly, the segment had garnered a lot of buying interest.

Post listing, certain SME stocks soared in excess of 200, 300, 500, or even 1,000 percent in trade, as froth quickly built up in the segment. Over the past five years, of the 100 top SME IPOs by issue size, 77 issues have doubled in price, with some counters even surging 10x. The average percentage is approximately 366 percent, from an SME stock listing to surging to its all-time high.

However, the tides shifted and the markets began to correct sharply September 2024. Unprecedented valuations, the China narrative, and an exodus of foreign capital flows caused the Nifty 50 and Sensex to crack, slipping from their all-time highs. However, the broader markets felt an exacerbated pain, as counters commanding hefty premiums were sold-off in droves.

No where in the markets was more froth seen than in the SME segment. The bear market swiped massive gains off the table, with the BSE SME IPO index crashing over 25 percent so far in 2025.

In a conversation with Moneycontrol, Kush Gupta, Director at SKG, a financial services player that offers merchant banking services, discussed the troubles with SME IPOs. "SME IPOs come up with a lot of challenges. Overvaluation in the SME segment is rampant. Further, my valuation can surge, but the irony of the situation is I can't liquidate it easily. It's just paper money."

Very few counters managed to defy the selling pressure, with only three of the 100 stocks studied, falling up to five percent. The average fall from the life-time highs of these stocks to the current market price is approximately -43 percent. More than 90 of the SME stocks studied crashed over 20 percent, leaving investors' portfolios bleeding.

However, while players who invested in these stocks near the top might be seeing significant pain, if you got in at the start, the picture isn't all too terrible.

From their issue price to the CMP, almost 40 stocks are still showing gains of over 100 percent. The BSE SME IPO index is also flashing 12 month returns of around 45 percent.

But through this, a broader pull-back can be seen. Initially, a large number of stocks delivered substantial gains, with 36 stocks rising over 300 percent from their issue price, including seven stocks surging past the 1,000 percent line. However, with the correction, only eight stocks are still holding above the 300 percent, while only three are giving gains of more than 1,000 percent. 22 stocks have given investors negative returns now.

Also Read | Bears gatecrash BSE SME IPO party after 20% correction from highs

The appetite for the SME IPOs has come down a little. "Finally, the pre-IPO market is seeing a correction which is a big, big relief. Because investors at some point of time were really getting scammed a lot. A lot of times, pre-IPO price (also known as the grey market premium or GMP) would go even higher than the IPO price. It's a joke!" quipped Gupta.

Looking forward, he still retains some optimism around the small-cap IPO space. "Not a lot of small companies have been listed. There is a huge potential of small companies to come on board," he said.