SME Migration to Mainboard Slows Amid Stricter SEBI Regulations

The once-booming trend of small and medium enterprises (SMEs) transitioning from the SME platform to the mainboard of Indian stock exchanges has seen a dramatic slowdown. As of 5 May 2025, only one company has successfully made the shift this year, compared to 12 in the whole of 2024. This represents a significant departure from the average of nearly 50 annual migrations recorded between 2020 and 2022.

Regulatory Overhaul Behind the Slowdown

This decline can be attributed to the Securities and Exchange Board of India (SEBI)’s decision to strengthen the regulatory framework governing SME-to-mainboard migration. In its December 2024 board meeting, SEBI approved a revised migration framework, which was officially notified in March 2025. 

The tightened rules, introduced to address concerns around corporate governance and protect public shareholders, have made it considerably more challenging for SMEs to qualify for mainboard listing.

Longer Waiting Periods for Transition

The time taken for SMEs to migrate has also increased substantially. While the average gap between SME listing and mainboard transition was under 2 years in 2019, this has now expanded to approximately five years. A contributing factor is the introduction of a mandatory three-year minimum waiting period between SME listing and mainboard migration.

New Eligibility Requirements by Stock Exchanges

Further compounding the slowdown are fresh eligibility criteria introduced by the National Stock Exchange (NSE) in April 2025. Key highlights include:

• Minimum revenue: Companies must report at least ₹100 crore in revenue in the preceding financial year.

• Profitability: Positive operating profits must be demonstrated in at least two of the past three financial years.

• Promoter holding: Promoters must retain at least 50% of their initial shareholding at the time of SME listing.

• Corporate governance: Companies must clear checks related to regulatory compliance, financial defaults, and other governance issues.

These measures are intended to ensure only financially stable and well-governed companies graduate to the mainboard.

Scrutiny of Past Migrations Fuels Stricter Norms

The revised regulations come in the wake of regulatory scrutiny of certain previously migrated SMEs. Companies such as Gensol, SecUR Credentials, and Varanium Cloud were flagged for alleged irregularities, including fictitious transactions, stock manipulation, and misappropriation of funds. These incidents underscored the risks faced by public shareholders and revealed loopholes in the earlier framework.

Read More: Retail Rush Turns Risky: Over 1 Lakh Investors Trapped in Gensol Engineering Shares. 

SEBI’s Stand on Governance and Promoter Behaviour

In a consultation paper issued in November 2024, SEBI raised concerns about a pattern of declining promoter holdings post-listing and instances of misconduct. It also advocated for a phased relaxation of promoter lock-in periods, while reinforcing the need for robust corporate governance to counter the growing risks of fund diversion and promoter exits.

Alternative Fundraising Options Without Migration

To address capital-raising concerns under the new regime, SEBI has introduced new flexibilities. SMEs can now raise funds through rights issues, preferential allotments, and bonus issues without necessarily migrating to the mainboard. This marks a shift from earlier requirements where such capital-raising activities often triggered mandatory migration.

Conclusion

The frenzied activity witnessed in the SME segment last year led stock exchanges to impose caps on listing gains to prevent excessive speculation. This further signals the regulatory intent to introduce greater stability and long-term credibility to the SME platform.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

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