BALANCING RISKS AND RETURNS: A STUDY ON UNDERPRICING IN SME IPOS

Abstract

Small and Medium Enterprises (SMEs) are pivotal to India’s economic growth, contributing significantly to GDP, employment, and innovation. To address capital constraints and foster growth, SMEs increasingly leverage Initial Public Offerings (IPOs) on platforms like BSE SME and NSE Emerge. However, the phenomenon of underpricing—where IPOs are deliberately priced below market value—poses unique challenges and opportunities for SMEs. This study explores the dynamics of underpricing in SME IPOs in India, examining its determinants, implications, and mitigation strategies. Using a dataset of 150 SME IPOs spanning 2014–2023, the study employs statistical techniques such as panel data regression and ANOVA to analyze factors like market conditions, corporate governance, geographic disparities, and regulatory measures. Findings reveal that favorable market conditions and investor sentiment amplify underpricing, while robust corporate governance reduces it. Regional economic disparities also significantly influence pricing strategies. The study concludes with actionable recommendations to optimize IPO outcomes, including enhanced governance, investor education, and tailored regulatory frameworks. Addressing these factors can enhance capital-raising efficiency and long-term growth prospects for SMEs, fostering their contribution to India’s financial ecosystem.