The markets regulator released a consultation paper on Tuesday and sought public feedback on the suggestions made by the stock exchanges and merchant bankers .
The above move comes in the wake of growing number of SME issues that has led to significant investor participation.
The applicant-to-allotted investor ratio increased from 4X in FY 2022 to 46X in FY23 and 245X in FY24, the Sebi paper said.
“It is observed that the retail individual participation has increased in SME IPO over last few years. Therefore, considering that SME IPOs tend to have higher element of risks and investors getting stuck if sentiments change post listing, in order to protect the interest of smaller retail investors, it is proposed to increase the application size from Rupees one lakh per application to Rupees two lakhs per application in SME IPO, as higher size will limit participation by smaller investors and shall attract investors with risk taking appetite, which will enhance the overall credibility of SME segment,” the consultation paper said while spelling out the rationale behind the move.
However, the above proposal will not require any change in current allocation categorisation in SME IPO which mandates not less than 35% allocation to retail individual investor in book build issue and minimum 50% allocation to retail individual investor in fixed price issues, since under retail individual investor category applications of amount up to two lakhs are permitted.There is another proposal to increase the application size from Rs 1 lakh rupees per application to Rs 4 lakh rupees per application. The limit of Rs 1 lakh was prescribed in SEBI regulations over 14 years ago and in last 14 years Nifty and Sensex have grown by around 4.5 times, the consultation paper said, adding that “Thus in view of same and considering passage of time, the alternate proposal is that it would be fit to increase the threshold in same ratio as the markets have grown”.
In the event of a four time increase, there will be a requirement of change in allocation categorisation in SME IPO as retail individual investor category will be redundant if application size is increased to Rs 4 lakh rupees per application. “Since, applicants will not be able to make application under retail category, it is proposed to merge allocation reserved for retail category in non-institutional category and delete provision related to reservation for retail individual investor category,” the consultation paper said.
