Vibrant Capital Market: Catalyst for Growth for SMEs

India’s capital markets are booming, and has become a powerful engine for economic growth by turning household savings into investments. Even during global tensions and domestic uncertainties, the stock market outperformed many other emerging economies, showing how investors, both local and global, trust India’s growth story. The number of retail investors jumped from 4.9 crore in 2019 to 13.2 crore by the end of 2024, showcasing the public’s interest in equity market country’s long-term potential. 

Financial Access for SMEs 

The Small and Medium Enterprises (SME) sector has long been recognized as a critical engine of economic growth and employment in India contributing significantly to GDP, employment, and regional development. As India progresses towards a $5 trillion economy, the role of SMEs in driving innovation, manufacturing and inclusive growth has become even more pronounced. However, limited access to capital and long-term equity financing remain as a key barrier for scaling and expansion. 

Capital markets are an important tool for SMEs to raise funds, grow stronger, improve their governance, and become future-ready. When SMEs go public through IPOs, it not only supports their growth, but brings more transparency and discipline to the business environment. India’s share in global IPO listings rose from 17 per cent in 2023 to 30 per cent in 2024, the highest in the world. SME IPOs played a critical role in this surge, with 96 SME IPOs being listed in the first six months of 2025 alone. SME IPOs have emerged as a vital mechanism for these enterprises to access equity financing, enhance visibility, and scale sustainably. 

Why SME IPOs?

In recent years, the introduction of dedicated SME platforms on Indian stock exchanges have opened new avenues for these businesses to raise funds. Compared to large corporations, SMEs are more flexible and responsive to changing market trends, showing greater agility in adaptation. They also have the potential for rapid scaling due to their smaller size and ability to grow exponentially with relatively modest capital infusions. As many SMEs are undervalued relative to their true growth potential, it gives investors an opportunity to acquire stakes at favourable valuations before their market value catches up with their performance. 

Regional Disparity in SME IPOs

According to a report by Confederation of Indian Industries (CII), this trend has gained significant traction in states like Gujarat, Maharashtra, and parts of South India, the uptake in Eastern India has been comparatively limited. 

According to the report, concerns like dilution of controls, higher reporting burdens, pressure to meet stakeholder expectations, high fixed costs for small IPOs and implementation of corporate governance has prevented companies from eastern India from listing themselves on the market. Considering that some of the states in this region are among the most industrialized states in India, offering diverse industrial bases, including manufacturing, textiles, pharmaceuticals, and information technology, the need for financial inclusion becomes even more critical. 

After the euphoric rise in SME listings observed in 2024, the market has turned notably cautious and regulations were put in place to monitor the pace and quality of these offerings. Going forward, these changes are likely to result in higher-quality SME IPOs characterized by stronger corporate governance practices and more sustainable business models.

Way Forward 

SME IPOs offer a promising avenue for India’s small businesses to unlock their growth potential. To fully realize the potential of SME IPOs, it is crucial to address challenges like streamlining the regulatory process, improving investor education, and creating a supportive ecosystem that can help foster a thriving SME IPO market. Enhancing regional trends in SME activity will help build entrepreneurial strength and identify potential investment opportunities that may arise as these businesses grow and evolve. Building a credible SME market in India might take time, but with policy support and strong fundamentals, the capital market offers a viable path to public markets.