The IPO process is one of the most closely followed market events, as it allows investors to benefit from the growth of a company from the very beginning. In India, the IPO process is divided into mainboard IPOs and SME IPOs, and it becomes important to understand the difference before applying for an IPO. A normal IPO involves larger and more established companies raising funds from the public through the NSE or BSE mainboard.
An SME IPO is oriented towards small and medium-scale enterprises that seek to mobilise growth capital through specialised platforms such as NSE Emerge or the BSE SME Exchange. Such IPOs are smaller in size, have different eligibility criteria, and involve higher risk and uncertainties of listing compared to a mainboard IPO.
Understanding the differences between SME IPOs and mainboard IPOs enables investors to identify opportunities that suit their risk profiles.
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What is a Mainboard IPO?
Mainboard IPOs are from companies that have larger revenue streams, are already operational, and have good corporate governance. These IPOs are typically larger in size, ranging from hundreds to thousands of crores, and allow retail investors to invest in smaller quantities, typically in lots of ₹12,000 to ₹15,000, depending on the price band.
Mainboard IPOs are known to offer the following:
- Better liquidity post-listing
- Wider analyst coverage
- Institutional support
- Greater regulatory oversight
- Lower minimum investment requirements compared to SME IPO
Due to these characteristics, mainboard IPOs are considered more stable than SME IPOs, with the exception of market risk.
What is an SME IPO?
SME IPOs are designed to facilitate smaller companies’ access to public capital markets. They are characterised by smaller issue sizes and higher minimum investments per lot. Most SME IPOs see extremely high levels of oversubscription due to limited supply and retail demand.
Online discussions and investor experiences have been cited to highlight that the allotment of SME IPOs can be challenging due to oversubscription and smaller sizes of the issues, making it less likely for retail investors to get even one lot.
Online discussions have also highlighted that while SME IPOs can be lucrative in terms of listing gains, they could be prone to liquidity problems and greater volatility, particularly during bear markets.
Characteristics of SME IPOs include:
- Smaller issue size
- Higher minimum lot investment
- Higher listing volatility
- Lower liquidity compared to mainboard stocks
- Higher retail oversubscription
SME IPO allotment is often lottery-based in retail categories due to high demand relative to supply.
Key Differences: IPO vs SME IPO
1) Company Size & Scale
Mainboard IPOs involve mid to large-sized companies, while SME IPOs highlight small-scale businesses.
2) Investment Size
SME IPO lots are significantly larger, making it more expensive to invest.
3) Liquidity
Mainboard stocks have higher trading volumes; SME stocks can have lower liquidity at the start.
4) Risk & Volatility
SME IPOs provide greater listing benefits but also involve higher risks because of the smaller financial size and market presence.
5) Subscription & Allotment Opportunities
SME IPOs receive extremely high subscription levels, making it difficult for retail investors to receive an allotment.
Which One to Choose as an Investor?
Stable and sound fundamentals are the hallmark of mainboard IPOs. Investors seeking high listing benefits and ready to take on high risks may consider SME IPOs after thorough research.
A combination of both is often preferred:
- Mainboard IPOs for major allocations
- SME IPOs for tactical investments
Risks Investors Must Assess
Before applying for any IPO category, assess the following:
- Financials and profitability of the company
- Track record of the promoter
- Growth prospects of the industry
- IPO valuation in comparison to peers
- Use of IPO proceeds
Do not invest in IPOs based solely on hype
Final Outlook
More SME IPOs have been seen in India due to government initiatives to enhance capital access and robust retail participation. SME IPOs are expected to continue their growth trajectory, while mainboard IPOs are expected to lead in terms of size and institutional participation.
With the maturing of Indian capital markets, both types are expected to complement each other in wealth creation and capital formation.
FAQs
- Are SME IPOs riskier than mainboard IPOs?
Generally, yes. SME IPOs tend to have higher volatility, lower liquidity, and smaller business size, making them riskier investments.
- Why is SME IPO allotment difficult?
Since the demand is high and the size of the issue is small, the probability of allotment becomes low, particularly for retail investors.
- Can SME IPOs offer greater listing profits?
Yes, but gains are inconsistent and highly dependent on market sentiment and company fundamentals.
