NSE's 90% Cap Brings Stability To SME IPO Market

(MENAFN- KNN India) New Delhi, Sep 19 (KNN) The sharp first-day gains that once defined small and medium enterprise (SME) initial public offerings (IPOs) have cooled as the National Stock Exchange (NSE) implements a 90% cap on retail investor participation.

This move, aimed at reducing volatility and speculation, has gradually shifted the market towards more stable and rational investing.

Between July 2023 and July 2024, SME IPOs delivered exceptionally high returns, with average listing gains climbing from 63.8% in July 2023 to 94.5% in January 2024.

However, by June 2024, these gains eased to 19.2%, reflecting the market's adjustment to the new regulatory framework. The cap, which restricts retail investors to a maximum of 90% of IPO allotments, was introduced to curb extreme price swings and prevent manipulation in SME issues.

Market experts view this development as a sign of healthy normalisation rather than a loss of investor interest. Apoorva Vora, co-founder of Finvolve, stated that the earlier trend of 100% gains was unsustainable as it relied heavily on speculative flows.

He noted that the NSE's move has brought much-needed stability and redirected attention towards fundamentally strong SMEs with better long-term prospects.

Tarun Singh from Prime Database Group said that while the initial frenzy has cooled, investor participation remains strong. In FY25 so far, 234 SMEs have raised Rs 9,119.97 crore through IPOs, surpassing the Rs 5,971.19 crore raised in FY24.

The number of SME IPO investors has also grown significantly, from 1.3 lakh in FY20 to 13.06 lakh in FY24 and 17.06 lakh in FY25.

Analysts believe the 90% cap has shifted the focus from short-term speculative trading to sustainable investments in quality companies, enhancing market credibility and investor trust.

(KNN Bureau)

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