In a move aimed at curbing speculative investments and protecting retail investors, the Securities and Exchange Board of India (SEBI) has issued a cautionary note regarding the recent surge in initial public offerings (IPOs) of small and medium enterprises (SMEs). The regulator has expressed concerns over the exaggerated portrayals and misleading tactics employed by some SME promoters, which have led to significant oversubscription and speculative trading.
SEBI’s warning highlights a troubling trend where post-listing announcements, such as bonus issues, stock splits, and preferential allotments, are creating an artificially positive sentiment around SME stocks. These actions often entice investors to purchase shares at inflated prices, allowing promoters to offload their holdings profitably. SEBI has advised investors to exercise due diligence, be wary of unverified information circulating on social media, and avoid making decisions based on rumors or speculative tips.
The recent IPO of Resourceful Automobile, a relatively small Delhi-based company with limited operational scale, exemplifies the phenomenon. Despite its modest size—with only two outlets and eight employees—the IPO was massively oversubscribed, attracting bids worth approximately ₹4,800 crore for a modest ₹12-crore issue. This dramatic disparity has drawn attention from market experts and regulators alike, who are concerned about the speculative frenzy driving these valuations.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, criticized the current IPO environment, noting that SMEs with little to no track record and questionable financial stability are experiencing excessive oversubscription. He emphasized that these trends are indicative of broader market excesses that necessitate regulatory scrutiny.
Over the past decade, SMEs have raised more than ₹14,000 crore through public listings, with 163 companies generating around ₹5,400 crore just this year. Notably, 27 of these firms have seen their stock prices more than double on their listing day. This surge in SME stock activity is attributed to increased market liquidity and heightened retail investor participation.
SN Ananthasubramanian, a practicing company secretary, has called for a comprehensive review of SME IPO processes by regulators. He suggests that a thorough examination of investor profiles, investment patterns, and the frequency of transactions could help mitigate risks associated with SME IPOs.
Vaibhav Porwal, Co-founder of Dezerv, acknowledges the current market dynamics, attributing the surge in SME stock performance to robust liquidity and enthusiastic retail investors. However, he warns that the bullish trend may not last indefinitely. Market corrections and potential regulatory interventions could lead to sharp declines in SME stock prices if investor sentiment shifts.
In conclusion, while SME IPOs present opportunities, the current market environment calls for heightened caution. Investors are advised to focus on the underlying fundamentals of the companies they are investing in and be vigilant about the risks associated with market speculation and regulatory changes.
hii Aditi Sahu this side..
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