Understanding Mainboard and SME IPO, allotment tips & GMP Insights

Learn Team
December 3, 2024

What is an IPO?

India's IPO boom in 2024 has been driven by robust domestic demand and a booming digital economy. The country's unique combination of economic stability, a booming digital economy, and a maturing private equity and venture capital ecosystem has set it apart on the global stage. The post-pandemic recovery has sparked resurgence in India's financial markets, prompting companies to seize on market optimism and a high appetite for new investments. Key factors driving this IPO boom in India include strong domestic demand, fueled by both retail investors and institutional participation, strong underlying economy supported by policies like PLI scheme, Aatmanirbhar Bharat, and reforms in infrastructure, manufacturing, and digital sectors. A steady flow of capital from Indian savers, new investment horizons for new age investors has played a critical role in maintaining momentum in public offerings, making India one of the most active markets globally for IPOs. Streamlined regulatory processes from Sebi have further eased and expedited IPOs, supporting the surge of new offerings.

IPO is a public offering in which a private company (that has a handful of shareholders) is taken public by listing it on the stock exchange and offering its shares to investors in the primary market. A process used in IPO helps inefficient price discovery of the securities. The issuer provides a price band within which investors may bid, and the final price is determined by the issuer only after the bidding process has concluded. Prospective buyers are given information about the proposed offering in the form of a lengthy document known as a prospectus.

Understanding the difference between SMEs and Mainboard IPOs

When it comes to investing in IPOs, it's important to know that not all IPOs are the same. Broadly, IPOs are categorized into two types: SMEs (Small and Medium Enterprises) IPOs and Mainboard IPOs. Each category has its rules for entry which comes with pros and cons.

Feature	SME IPO	Mainboard IPO
Target Companies	Small and Medium Enterprises	Larger, more established companies
Post-issue paid-up capital	Minimum of Rs 1 crores and a maximum of Rs 25 crores.	Minimum of Rs 10 crores is required.
Listing Platform	Can list on only one exchange. (BSE SME, NSE Emerge)	Both NSE and BSE
Financial Requirements	Lower (Revenue, Profit, Net Worth)	Higher (Revenue, Profit, Net Worth)
Regulatory Requirements	Less stringent	Stricter
Market Liquidity	Lower	Higher
Risk Level	Higher	Moderate
IPO application size	Around Rs. 15000	Minimum: Rs. 1 Lakh
Investor Base	Generally retail investors	Institutional and retail investors
Investment Amount	Typically lower	Typically higher
Post-IPO Compliance	Less complex	More complex
Offer document vetting	By Stock exchange	By SEBI

What is a Mainboard IPO?

Mainboard IPO is said to occur, when established private companies with healthy fundamentals; sound business prospects and has demonstrated record of profitability but due to their size, makes it difficult for promoter to pump in funds for expansion. Mainboard IPO category is reserved for large corporations with a paid-up capital of over Rs. 10 crores. Not all mainboard IPO are for fresh issue, some of the promoter, private investors takes opportunity of going public to cash their investment and yield profits.

Advantages of Mainboard IPO

Gives opportunity to retail investor to become long term investor of the company.
Profitability and business prospects of established business are comparatively stable, reducing risks for small investors.
Mainboard IPOs have greater liquidity, compared to SME IPO.
Opens doors for companies to raise capital, to fund expansion, enter new markets, and invest in innovation.
Improve price discovery, gives visibility and credibility

What is an SME IPO?

Small and medium-sized enterprises (SMEs) play a vital role and act as one of the important lifelines of the Indian economy. As per a agency, the SME sector contribute around 30% to India’s GDP and employ approximately 40% of the workforce. These smaller enterprises act as act as significant source of innovation and are mainly focused on the manufacturing, trade, and services sector. Despite innovation and providing employment to significant portion of the workforce, these small industries face many problems and among the most important is access to stream of capital. So with the motive to give support and give a boost to these small industries, exchanges along with market regulator launched SMEs IPOs in 2012.

Floating an SME IPO is a process though which small and medium-sized enterprises for the first time issue shares to the public generally for raising capital for capital expenditure. Issue size of SME IPO is considered small compared to mainboard IPO. SME’s with post-issue capital not exceeding Rs. 25 crores are eligible to issue their shares via SME IPO. Shares of SME are listed on platforms like BSE SME and NSE emerge.

Advantages of SME IPO

Access to capital
Leads to price discovery with increasing Investor's participation
Promoters business, increases visibility and credibility of business
Improved Governance and Management
Benefits of Employee Stock Option
With rising profits, SME can eventually migrate to Mainboard exchange

How to Increase Chances of Getting Allotment, Shares in IPO?

Many investors faces problem they never gets IPO allotment, doesn’t matter what application size or broker they subscribe through. Although no broker one can guarantee PIO allotment but following are some of the ways, through which an investor can increase their chances of getting IPO allotment.

Use Multiple Demat Accounts

Applying for multiple trading applications under single PAN card can lead to rejection of all IPO application. Rather you can apply from different pan cards though your family members to increase your chances of getting IPO allotment in case of an oversubscribed IPO.

Avoid Last Moment Subscription

Some investor waits for last day, last moment to see what level of HNI and Institutional category is subscribed before placing their bids. Investors waiting for last moment may miss the IPO, as any issue can arise like payment issue, issue from bank side, or even broker can go into maintenance.

Buy Shares of Parent Company

Although very few publically traded company bring IPO of its subsidiary but none the less trick of buying shares of parent company also works. Applying under the shareholder quota allows existing investors to get preferential treatment when applying for the IPO. Recent IPO like Tata technologies, NTPC green IPO, there were quota allotted for existing shareholders. So in order to increase IPO allotment chances, it’s crucial to understand how the shareholder quota works and the steps involved in applying under this category.

Role of Grey market premium

Grey market premium (GMP) is a premium amount at which shares of grey market IPO are traded before they are listed on the stock exchanges. The Grey Market Premium (GMP) of an IPO is a physiological price that investors or traders see before the day of listing. It is determined by the demand and supply of the stock in the IPO. If the IPO is oversubscribed, the demand for shares offered in the IPO is much greater, and the GMP will be higher. Conversely, if the demand for the shares is lower than the shares offered through the IPO, the GMP will be lower. Grey market premium helps investors understand whether the IPO is safe to invest in.