The SME IPO segment in India has raised concerns for the Securities and Exchange Board of India (Sebi) due to the significant increase in retail investor participation compared to the increase in private equity or sophisticated investors.

This has led to a higher influence of promoters in these family-run businesses. Sebi"s discussion paper has highlighted instances of inflated revenues through circular transactions involving related parties and shell companies. It has also been found that some companies have diverted funds raised from IPOs and rights issues to entities controlled by promoters.

One company was even involved in fraudulent sales and purchases through these circular transactions, prompting Sebi to increase its oversight of the SME IPO landscape.