Small and Medium Enterprises or SMEs are businesses that fall below a set limit when it comes to assets, revenue, or number of employees. The criteria for businesses to belong to the SME category depend on the country and the industry. 

Governments across the globe have recognised just how crucial SME planning is to keeping their economies thriving. However, one of the basic problems faced by these companies is related to funding. Through an SME Initial Public Offering (IPO), SMEs can raise funds for their business. More insights on the SME IPO and its importance have been shared in this blog. Let’s start!

What is an SME IPO?

Before a stock can be listed and traded, the company needs to launch an IPO on the exchange’s SME platform. Through SME-IPOs, small and medium enterprises raise capital from retail investors, Qualified Institutional Buyers (QIBs), and Non-Institutional Investors (NIIs). As an investor, you should know that some SME-IPOs have delivered strong returns over time, with a few companies eventually becoming multibaggers.

Benefits of an SME IPO to Investors 

As a keen investor in stock market instruments, you must know about all the benefits of investing in SME IPOs: 

  1. Opportunity to Become an Early Investor

SME IPOs are usually available at a lesser premium than the IPOs of large and mid-size companies. So, it gives you an opportunity to invest in the company after researching its history and financial documents carefully. 

There can be many perks of being an early investor in stocks. You can redeem your shares whenever the stock prices rise above a certain level.

  1. Portfolio Diversification 

Stock market trading is not just about investing in large-scale companies and blue-chip stocks. It is also about diversifying the portfolio to balance the risks during a market crash or other unprecedented crisis events. 

  1. Opportunity to Invest in New Or Rising Sectors 

SME IPOs allow you to invest in a stock that may dominate a new or less-represented sector in the future. 

Benefits of SME IPOs for companies 

Companies try to gain these advantages while launching their SME IPO:

  1. Capital Generation 

SMEs may require consistent funding to manage their ongoing operations and maintenance costs. Unlike bank loans, the funds raised through an IPO do not need to be returned immediately. Therefore, SMEs can use them to grow their business for a long time. 

  1. Building Trust Among Customers 

Companies must also know that the early investors in their IPO can also be their future customers. So, they can induce fair policies for exchange and trading shares to build the customers’ trust. 

  1. Increasing Visibility

An SME can improve its online reputation and presence by getting itself listed on the stock market. It can leverage this opportunity to expand their reach and generate trust among stakeholders.

Note: Check the official sites of registrar companies for recent updates on all types of IPOs. 

How to apply for an SME IPO’s Subscription?

The steps below will help you to avail an SME IPO subscription without any issues:

  • First, you must have a demat account. It is through this account that you can bid for an IPO and wait till it gets allotted.
  • Alternatively, you can also visit the stock exchange’s website, on which the IPO will be launched. Here, you will find a list of newly released or to-be-released IPO notifications. Click on the IPO notification you are interested in and complete the subscription process. 
  • Some banks also offer Application Supported by Blocked Amount (ABSA) services. After selecting the platform for the IPO application, choose the number of lots you want to bid for and finally place the bid. 
  • The option for paying through net banking or any other online payment method is available on all platforms. Choose your preferred mode of payment and proceed with the payment. After the allotment is done, check the SME IPO allotment status on the registrar’s site or through your brokerage platform. 
  • If you don’t get any shares allotted to your account, the deposited amount will be sent back to your bank account. 

What is the GMP of SME IPOs?

IPOs also get traded and exchanged through the grey market. The grey market is the unofficial market that reflects the positive or negative sentiment regarding an IPO. 

To measure this sentiment, you can study the Grey Market Premium (GMP). It is the amount paid more than an IPO’s original price. For instance, if a specific SME IPO has been priced to be Rs. 400 but owing to the positive sentiment regarding it in the public, its value in the grey market can be Rs. 450. So, GMP is the additional Rs. 50 that investors pay as a premium to subscribe to an SME IPO. 

Once the IPO allotment is done, the IPO shares are allotted to the investors. If your bid does not get accepted, the amount will be returned. Usually, it has been observed that the IPOs that were allotted at a higher GMP have done well after getting listed in the stock market. 

However, remember that the grey market is not official and therefore, it is not controlled by the Securities and Exchange Board of India (SEBI). So, if you are investing in an SME IPO by paying GMP, you must be careful and choose only the right person for the deal. 

Final Thoughts 

These were some key insights about SME IPO and SME IPO GMP. To stay updated on stock exchange news and the latest IPO announcements, head over to Share.Market — your one-stop platform for information on equities, ETFs, bonds, IPOs, and more. Explore the tools and make smarter investment decisions backed by expert insights!

FAQs

  1. What is an SME IPO?

The SME IPO full form is Small and Medium Enterprises Initial Public Offering. In simple words, it is an IPO of an SME that wants to raise public funding by listing its stock in the share market. Before that, they launch their IPO so that the interested investors can invest in their IPO before listing. 

  1. How do I know when my SME IPO subscription becomes successful?

If you have sent your bid for an SME IPO, NSE, BSE, NSDL, and CDSL will notify you via email and SMS. You can also check the registrar’s official website to see if your bid has been accepted by the company or not. 

  1. Where can I see the SME IPO list?

Make use of platforms like Share.Market to get easy access to the updated SME IPO list!